THE AUTOEXTREMIST

November 18, 2009

The travails of Smart reveal some High-Octane Truths for all.

By Peter M. De Lorenzo

(Posted 11/17, 9:30am) Detroit. Two weeks ago, in an item in our “On the Table” column, I suggested that the Smart adventure was nearing an end, saying the following: “Back when this venture was first announced I went on record as saying it would last 12 months, tops. Well, 20 months in and with sales trending downward month after month - October sales were down a staggering 70.4 percent - I think we can safely say that the Smart experiment is a bust. Even with an electric version allegedly coming here, it doesn't matter. It's a niche car, and the niche has been filled. Buh-bye now.”

Smart (and for this discussion I will capitalize the “S” even though the official name of the vehicle uses a lower case “s”) is the huggable two-seat urban car that enjoyed considerable success in its home European markets when it was launched several years ago, and it was easy to see why. It fit perfectly in the manically crowded streets and byways in cities all across Europe, and it was an instant success. Americans even became very familiar with the sight of the Daimler-owned Smart during their travels over there, commenting often about how you saw Smart cars “everywhere.”

Wondering how to capitalize on the success of Smart in Europe, the idea of bringing the Smart car over here was something that was visited and re-visited often by Daimler, but the timing never seemed right. Or maybe it was just because Dieter Zetsche - the incredibly overrated German auto executive who initially was Mr. Popular here but who then flamed-out big-time by being a major player in Daimler AG’s gross mishandling of its Chrysler infatuation - couldn’t envision a scenario where it could be done with a modicum of profitability.

That is until he began discussions with auto entrepreneur Roger Penske in late 2006, which continued throughout 2007, culminating in an agreement by which Penske would create a distribution network for Smart. That deal was announced with much fanfare at the Detroit Auto Show in January 2008, and the Smart launch in the U.S. was under way.

At first the timing of the Smart launch seemed visionary, because this country was headed for the highest recorded gasoline prices in our history, and Smart sales took off. In typical American consumer fashion, the “first on the block” syndrome played heavily in the Smart car’s initial success. It was cute and huggable, it was dramatically different, it came in bright, cuddly colors, and it seemed like the right car, at the right time, with the right affiliation, a “hipster” star in the making.

After all, if Roger was involved, it had to be a successful proposition, right? And at first it was boom times for Smart, with almost 2700 cars sold in May 2008, and 24,622 for that year. A fairly respectable showing for what was - by any measure - a niche car.

Slowly but surely, however, reality set in. After the “first on the block, gotta get me one of those” buyers were sated, and the small car frenzy that was initiated by $4.00+ per gallon gasoline gave way to more rational thought, the Smart was exposed for what it really was: a very nice European urban micro car albeit with some serious drawbacks that made it ill-suited for most of the U.S.

What were those drawbacks? There were three. First of all was the fact that the transmission was so far below par that it actually negatively impacted the driving experience. It was (and is) jerky and balky, and only the most starry-eyed early-adopter consumers could ignore the fact that it was simply unacceptable for contemporary motoring. Secondly, the mileage wasn’t all that great in comparison to other fuel-efficient offerings out there. And finally, the value component left a lot to be desired because you could simply get more car (as in more room and comfort) - with mileage that was comparable or better to the Smart - for pretty close to the same money as a fully-loaded Smart.

And once gasoline prices started to ease up and consumers took a deep breath and took a giant step back and surveyed the market, it was clear that the Smart came up short in the Big Picture of vehicles out there. And the sales started to wane, month by month.

Which brings us to where we are today, and that is with just 661 cars sold last month and 13,082 sold year-to-date in 2009, Smart sales are well and truly in the tank.

Seeing where this is going - in other words, nowhere good - Daimler is taking a flyer on giving Smart a new reason for being as a short-term urban rental car. In a program that was announced today in Austin, Texas, Smart cars will be offered to consumers in a new program called car2go.

The car2go rental program makes Smart cars available to registered consumers in Austin for as long as needed, after which they can then return the cars to designated parking spaces in and around the city which are included in the fee. The cost will be 35 cents per minute including insurance and gas and the cars will also be available for one day or multiple day uses.

Two hundred Smart ForTwo cars will be initially allotted for the effort, mirroring a program Daimler first tested in Ulm, Germany, last year. The pilot program will be run by Austin city employees, which goes hand-in-hand with the fact that Austin views itself as one of America’s visionary “green” cities, and its leaders see this as a golden opportunity to curb urban congestion.

And the idea is to take it to other cities, too, with Zetsche hinting at the fact that many other cities are interested in the new program. That’s all well and good, but the interesting thing is that this is a Daimler AG program and that the Penske Automotive Group – the U.S. distributors for Smart – is not involved.

Right now the Smart brand is dead in the water in the U.S., and that presents a huge problem for Smart dealers across the country - and for Roger Penske. It’s fine that Dieter and his troops are thinking of ways to pump up the Smart ForTwo’s raison d’etre, but in order for Smart to continue to be viable in the U.S., it desperately needs a larger car. Like yesterday.

At one point there was a larger Smart “ForFour” in Europe from 2004 to 2006 based on the European Mitsubishi Colt, and Daimler is said to be considering a new-generation Smart “ForFour” concept now, but nothing has been decided as of yet. They better get on with it because without a larger Smart vehicle the Smart brand will not survive in this country, period.

What’s the lesson in all of this, if there is one buried in here somewhere?

There are two, actually. The travails of the Smart car adventure in this country reveal two, time-honored High-Octane Truths about this business.

The first is that this is a relentlessly tough business (yeah, I know, that’s a bulletin, right?). You can line up all of the seemingly essential ingredients – and believe me having Roger Penske involved is very much about having the right “essential” ingredient - but that unto itself is really no guarantee of the level of success that will be achieved. There is a kaleidoscope of variables involved - distribution, pricing, the retail component, market conditions, promotion, marketing, “the buzz” etc., etc., etc., and any one of those things can go awry, and in a big way too.

Which leads me to the next High-Octane Truth about this business and that is you can have all of those aforementioned variables in perfect order, but if the product itself isn’t up to snuff it ultimately won’t matter, because it is, was, and always will be about the product.

As a car, the Smart leaves a lot to be desired. You don’t enter this market with a built-in fatal flaw – and believe me, the Smart gearbox is a fatal flaw – and expect to succeed. Combine that with a value quotient that comes up short when compared to, for example, the Honda Fit, and add to it the notoriously short attention span of the American car buying consumer, and you have a recipe for a short-term proposition in this market, at best, because in the end “buzz” can only carry you so far.

Oh, and by the way, I think there are a few lessons in here somewhere for Sergio’s Fiat-Chrysler entourage, if they can quit pontificating to themselves long enough to pay attention, that is...

Thanks for listening.

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