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  • Created by a Swiss watch company and a German automaker, the

  • tiny Smart car was meant to be a revolutionary new idea in urban

  • mobility. But more than 20 years after its creation, the Smart

  • car is struggling.

  • Its parent, the massive German automaker Daimler, doesn't report

  • Smart's finances, but analysts estimate the brand is losing

  • hundreds of millions of dollars a year.

  • Now, Smart has a new direction.

  • It is going electric and partnering with Chinese automaker,

  • Geely. The hope is the deal will help Smart slash its onerous

  • labor costs and give it exposure to the world's largest auto

  • market. Industry watchers say it might be the best chance to

  • save the Smart brand and let it live up to its potential.

  • The Smart car was the result of a collaboration between

  • Mercedes-Benz and Swatch, the watch brand which helped

  • revitalize the deeply troubled Swiss timepiece industry in the

  • 1980s. In 1989, Swatch founder Nicolas Hayek

  • had an idea for a very small, very affordable and highly

  • efficient vehicle, that was, in his words, "big enough to hold

  • two people and a case of beer."

  • The car was meant to appeal to young urban buyers and had

  • features suggestive of the bright, colorful swatch watches Hayek

  • helped to make so famous.

  • For example, the car was supposed to have swappable panels so

  • drivers could customize its look.

  • At first, Hayek tried to partner with Volkswagen, but that deal

  • fell through and then Hayek turned to Mercedes-Benz.

  • Mercedes had been working on similar concepts from micro cars

  • since at least the 1970s.

  • The first Smart model debuted in 1997 at the Frankfurt Auto Show

  • and production started in 1998.

  • The company began selling cars later that year in nine European

  • countries. In 2008, a dealer group headed by mogul Roger

  • Penske began selling the smart car in the U.S.

  • based on success the group had seen selling the car in Europe.

  • The thinking was that at least some Americans would also want a

  • fuel efficient car at a relatively low price.

  • We went back and we sell these vehicles today, The United Auto

  • Group in the UK.

  • We're looking at the fortwo as really a very, very strong

  • residual vehicle.

  • Fuel economy is one, but residual value and low cost of

  • ownership and certainly urban friendly will make a huge

  • difference in this product in this marketplace.

  • It came at the right time.

  • Fuel prices rose to record highs in 2008 and the Great Recession

  • struck just as the first cars were making their way across the

  • Atlantic. The timing of this.

  • The Smart debuted in the U.S.

  • in 2008.

  • That was right about the time that fuel prices were about to go

  • haywire. Also, it was right about the time that the economic

  • downturn in the US. So the Smart at the time seemed like a

  • very shrewd, very relevant, new brand and

  • vehicle introduction in the U.S..

  • Penske became the sole distributor of the brand for several

  • years before handing the business off to Daimler.

  • In 2011, sales fell to 5,208 cars

  • that year, down from 24,622 in

  • 2008. There were larger industry trends working against the car.

  • As the U.S. emerged from the recession and gas prices fell from

  • record highs, U.S.

  • consumers flocked to sport utility vehicles and crossovers to an

  • unprecedented degree.

  • Consumers are a lot more interested in crossover, SUV type

  • vehicles right now, and modern crossover SUVs

  • have very, very little fuel economy difference compared to

  • comparable of sedan vehicles .

  • People really like the ease of getting in and out of a vehicle

  • that sits up a little higher and has a higher roof.

  • You know, people really like having a hatch that is inherently

  • more practical than a sedan.

  • All smaller cars started to struggle in this new landscape, but

  • the Smart car seemed a particularly tough sell.

  • The only model Smart sold in the U.S.

  • was the fortwo. As the name suggests, it had just two seats and

  • very little in the way of trunk space.

  • While this made it extremely maneuverable and easy to park,

  • these were big sacrifices customers didn't have to make buying a

  • subcompact car from another manufacturer with comparable fuel

  • economy and a similar price.

  • The Smart was really pretty unsuited for the rest of the

  • country. This is a car that costs about the same as other

  • compact cars. In the end, the fuel economy ended up nearly not

  • being much better at all than other larger four-door

  • compact cars. This was a pretty out-of-step crop.

  • It only had two seats, it was perceived by many to be unsafe

  • just because of its small size, never mind what the marketing

  • told them. And the car was underpowered, it had this

  • terrible transmission.

  • It simply required way too many sacrifices that the consumer

  • from an American perspective, far too little benefit.

  • In early 2019, Smart said it would pull out of the U.S.

  • after years of increasingly dismal sales.

  • The brands sold just 1,276 units in the U.S.

  • in 2018, down from a mere 3,071 in 2017.

  • Mercedes-Benz told CNBC it chose to pull the Smart brand from

  • North America for a number of reasons, including a declining

  • micro car market in the U.S.

  • and Canada and high compliance costs for a low volume model.

  • The company will continue to provide warranty and service

  • support for the Smart models sold in the U.S.

  • In Europe, Smart cars have sold in far higher numbers, but it

  • still has not been enough to make money for Daimler.

  • The margins on small economy cars, even chic, eco friendly ones,

  • are as thin as blades of grass.

  • It's all about the sharing of technology, the sharing, the

  • things that, you know, you see underneath, that you don't see

  • normally underneath the bodywork things like engines, gearboxes,

  • platform architecture.

  • And 90,000 units is not very much to drive that from,

  • especially in the lowest price category of the entire industry.

  • At least one analyst who follows Daimler estimates the brand

  • loses about $500 million on Smart per year.

  • I mean, manufacturing cars is damn difficult and it's very, very

  • hard to make money. So, you know, the bigger the car is,

  • normally the more money you make you make with it and the

  • smaller the car is, you know, the price drops down.

  • And when it comes to the size of a Smart, it's very, very hard

  • at the selling price of, you know, $12,000-$15,000, maybe

  • $18,000 to really make money with such a product.

  • And we've seen that over and over again.

  • Smart's particular trouble is that it relies on high cost labor,

  • say analysts. Up until 2019, all Smart cars were manufactured at

  • a purpose built factory Smartville in Hambach France, near the

  • French-German border.

  • What Smart does have in its favor is a strong brand message.

  • The cars are innovative.

  • They're a fancy design, a colorful design.

  • So I would say in general they have a good, you know, they

  • have a good brand image, good heritage.

  • Saving on gas and reducing carbon emissions is a powerful

  • selling point for some customers around the world.

  • For example, in Daimler's home country of Germany, one-third of

  • voters under the age of 30 voted for the Green Party in European

  • elections in 2019.

  • Europe always had much more focus on, you

  • know, on clean mobility.

  • The, you know, the rules are much, much stricter for fuel

  • economy in Europe.

  • Everything's much more CO2 based in Europe.

  • And hence, the vehicle fleet is also very, very different to the

  • fleet in the U.S. And there is China, which developed what are

  • regarded as perhaps the world's most ambitious plans to promote

  • electric vehicle adoption around the world.

  • Smart announced its 50/50 partnership with Geely in 2019.

  • One of China's largest automakers, Geely already owns Swedish

  • carmaker Volvo and has spun out Volvo's Polestar performance

  • sub-brand into a standalone nameplate for fully electric,

  • high-end vehicles.

  • Like the high-end Polestar cars, Daimler and Geely's Smart cars

  • will be fully electric and will be manufactured in China.

  • If it goes as planned, cheaper Chinese manufacturing will help

  • Smart lower its labor costs and make money off its cheaper cars.

  • The partnership will also give Smart a chance to compete in the

  • massive Chinese auto market, the largest in the world.

  • 28 million new automobiles sold in China in 2018, and

  • there are already more electric cars in the country than in

  • every other country combined.

  • It really opens up the Chinese market with 23-25 million units

  • annually in a couple of years time.

  • By far the largest market globally.

  • We talk about tier one cities with huge traffic, so a small,

  • Smart car can really make sense.

  • Such a massive potential appetite for a small electric vehicle

  • could finally give Smart the market it needs to realize the

  • goals of its inventor.

Created by a Swiss watch company and a German automaker, the

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