Analog
Lifer
Six years since DaimlerChrysler AG launched the Smart minicar brand, the boxy two-seaters have become cult icons in Rome, Paris and other European capitals where two Smart cars can squeeze easily into one parking space.
With the addition of a roadster in 2003 and ForFour sedan in September, Smart sales are gaining traction.
The brand made its long-awaited North American debut in September, when Smart cars went on sale in Canada. In October, the division recorded its best month ever, boosting sales 44 percent to 15,200 cars.
But profits haven't followed. Smart, part of the Mercedes Car Group, was supposed to break even this year, yet losses have widened.
The setback at the Smart division adds to the problems dogging luxury carmaker Mercedes-Benz. Mercedes profits slumped 30 percent in the first nine months of the year to $2 billion because of the euro's strength, expenses incurred to bolster vehicle quality, and losses at Smart.
DaimlerChrysler's soon-to-retire chief financial officer Manfred Gentz said on Oct. 28 the company was taking a hard look at the Smart business.
Gentz -- who raised alarm bells about DaimlerChrysler's ailing partner Mitsubishi Motors Corp. earlier this year -- did not rule out getting rid of Smart. "We have to consider all possible alternatives," he said.
Gentz's warning about Smart and its drain on the Mercedes Car Group did not surprise investors. DaimlerChrysler doesn't break out the results of the Smart division, but analysts estimate it cost the company $1 billion in initial investment, and has run up more than $2 billion in losses since 1998.
But the timing of Gentz's remarks was awkward. The company is in the midst of recruiting American Mercedes-Benz dealers for the U.S. launch in 2006 of the Smart ForMore, a compact sport utility vehicle.
Ulrich Walker, the new head of Smart, fired off a memo to employees the day after Gentz's comments to assure them that there were no plans to sell or close the business.
"Smart still isn't making money -- that's true," Walker wrote. "But its existence is not in question. (CEO) Juergen Schrempp and (Mercedes chief) Eckhard Cordes made that clear to me yesterday."
Walker attributes the division's troubles to weak consumption in Germany, coupled with higher sales and marketing costs.
But he is now under intense pressure to pull the division out of the red by 2006, the new break-even deadline. "It's self-evident that we have to look at all possibilities to make Smart profitable," he told employees.
With Mercedes-Benz struggling with the costs of new models and expenses to shore up its sagging reputation for quality, the luxury carmaker cannot afford chronic losses at the fledgling minicar business.
Adding to the frustration at DaimlerChrysler's Stuttgart headquarters, Smart's performance compares poorly with the roaring start of rival BMW AG's pricier Mini brand, launched three years after Smart.
The road-hugging Minis are popular in Europe and in the United States. In the first 10 months of 2004, Mini sales totaled 157,943 worldwide.
This year, Smart has sold 113,400 cars, mainly in Europe, Japan, Taiwan and Canada, where the diesel-powered ForTwo went on sale in September.
On Monday, California distributor ZAP obtained regulatory clearance to sell Smart cars in the United States. It hopes to sell 15,000 ForTwos -- eight-foot-long cars that clock an amazing 60 miles per gallon.
"You look at all the interest in hybrids and cars like the Mini Cooper, and we saw that there was a market here for these automobiles," said Alex Campbell, spokesman for Santa Rosa, Calif.-based ZAP.
But Mercedes officials say the U.S. launch of the ForMore will be critical to the brand's long-term success. Mercedes has asked its exclusive dealers in the United States to submit proposals by the end of the year.
"I would suspect that bringing this vehicle to this market would put them where they want to be," said Bill Little, general manager of the Silver Star Mercedes-Benz dealership in Thousand Oaks, Calif.
"As far as I know, everyone's interested" in the new SUV, he said.
The ForMore, featuring Smart's easy-swap panels and ultra-tough safety cell to protect occupants, will be built at DaimlerChrysler's Juiz de Flora plant in Brazil and share the underpinnings of the ForFour.
The automaker is courting U.S. Mercedes dealers in big cities on the east and west coasts to launch the franchise. "They're not asking for a giant investment initially," Little said.
While new to North America, the Smart business is an old project. Mercedes-Benz first contemplated getting into the small-car business in the 1970s, when rising fuel prices and urban congestion became serious concerns for the manufacturer of gas-guzzling luxury sedans.
The Smart brand was initially conceived as a new type of urban transport. Airports, hotels and rail companies were expected to buy and rent out Smart cars by the day or by the hour to help people get around in crowded cities.
But the plans did not materialize and the quirky ForTwo found itself competing in the cutthroat mass market. Although the car became popular with urban customers, its appeal was limited because the ForTwo was not designed for highway driving. Its top speed was 80 miles per hour.
To boost sales volumes, Mercedes expanded the Smart lineup. But with the new ForFour, developed jointly with Mitsubishi, Smart is now competing head-on with European small car specialists Renault SA, PSA Peugeot Citroen SA, Volkswagen AG and Fiat Auto SpA. Japanese and Korean automakers are crowding into the market, as are luxury carmakers, such as BMW, with its new 1 Series compact.
Andreas Sperling, a dealer in the southern German town of Esslingen, has sold Smart cars since their introduction. "With the ForTwo, there were no comparable cars in its class. But with the ForFour, we have to contend with an existing market," he said.
"In Esslingen, there is a strong Toyota dealership 500 yards away, so the Yaris (compact) is a big competitor," he says.
Sperling also manages a Smart outlet in the nearby town of Reutlingen that faces stiff competition from Volkswagen's Audi, VW and Skoda brands and BMW.
But since 2001, the European small-car segment has shrunk by half a million vehicles to around 3.8 million units as customers flock to new compact minivans.
To bolster sales in a shrinking market, Mercedes is urging more of its European dealers to offer Smart cars.
Company officials are also mulling more cooperative ventures, such as the Mitsubishi-Smart production deal in the Netherlands, to lower development and production costs for future Smart cars.
DaimlerChrysler CEO Schrempp is keen to retain small cars in the automaker's vast portfolio to expand the company's presence in Asia and other emerging markets. Some analysts believe DaimlerChrysler will be on the lookout for another Asian partner to pave its way into new regions and smooth out Smart's bumpy ride.
"It's self-evident that we have to look at all possibilities to make Smart profitable."
Text
With the addition of a roadster in 2003 and ForFour sedan in September, Smart sales are gaining traction.
The brand made its long-awaited North American debut in September, when Smart cars went on sale in Canada. In October, the division recorded its best month ever, boosting sales 44 percent to 15,200 cars.
But profits haven't followed. Smart, part of the Mercedes Car Group, was supposed to break even this year, yet losses have widened.
The setback at the Smart division adds to the problems dogging luxury carmaker Mercedes-Benz. Mercedes profits slumped 30 percent in the first nine months of the year to $2 billion because of the euro's strength, expenses incurred to bolster vehicle quality, and losses at Smart.
DaimlerChrysler's soon-to-retire chief financial officer Manfred Gentz said on Oct. 28 the company was taking a hard look at the Smart business.
Gentz -- who raised alarm bells about DaimlerChrysler's ailing partner Mitsubishi Motors Corp. earlier this year -- did not rule out getting rid of Smart. "We have to consider all possible alternatives," he said.
Gentz's warning about Smart and its drain on the Mercedes Car Group did not surprise investors. DaimlerChrysler doesn't break out the results of the Smart division, but analysts estimate it cost the company $1 billion in initial investment, and has run up more than $2 billion in losses since 1998.
But the timing of Gentz's remarks was awkward. The company is in the midst of recruiting American Mercedes-Benz dealers for the U.S. launch in 2006 of the Smart ForMore, a compact sport utility vehicle.
Ulrich Walker, the new head of Smart, fired off a memo to employees the day after Gentz's comments to assure them that there were no plans to sell or close the business.
"Smart still isn't making money -- that's true," Walker wrote. "But its existence is not in question. (CEO) Juergen Schrempp and (Mercedes chief) Eckhard Cordes made that clear to me yesterday."
Walker attributes the division's troubles to weak consumption in Germany, coupled with higher sales and marketing costs.
But he is now under intense pressure to pull the division out of the red by 2006, the new break-even deadline. "It's self-evident that we have to look at all possibilities to make Smart profitable," he told employees.
With Mercedes-Benz struggling with the costs of new models and expenses to shore up its sagging reputation for quality, the luxury carmaker cannot afford chronic losses at the fledgling minicar business.
Adding to the frustration at DaimlerChrysler's Stuttgart headquarters, Smart's performance compares poorly with the roaring start of rival BMW AG's pricier Mini brand, launched three years after Smart.
The road-hugging Minis are popular in Europe and in the United States. In the first 10 months of 2004, Mini sales totaled 157,943 worldwide.
This year, Smart has sold 113,400 cars, mainly in Europe, Japan, Taiwan and Canada, where the diesel-powered ForTwo went on sale in September.
On Monday, California distributor ZAP obtained regulatory clearance to sell Smart cars in the United States. It hopes to sell 15,000 ForTwos -- eight-foot-long cars that clock an amazing 60 miles per gallon.
"You look at all the interest in hybrids and cars like the Mini Cooper, and we saw that there was a market here for these automobiles," said Alex Campbell, spokesman for Santa Rosa, Calif.-based ZAP.
But Mercedes officials say the U.S. launch of the ForMore will be critical to the brand's long-term success. Mercedes has asked its exclusive dealers in the United States to submit proposals by the end of the year.
"I would suspect that bringing this vehicle to this market would put them where they want to be," said Bill Little, general manager of the Silver Star Mercedes-Benz dealership in Thousand Oaks, Calif.
"As far as I know, everyone's interested" in the new SUV, he said.
The ForMore, featuring Smart's easy-swap panels and ultra-tough safety cell to protect occupants, will be built at DaimlerChrysler's Juiz de Flora plant in Brazil and share the underpinnings of the ForFour.
The automaker is courting U.S. Mercedes dealers in big cities on the east and west coasts to launch the franchise. "They're not asking for a giant investment initially," Little said.
While new to North America, the Smart business is an old project. Mercedes-Benz first contemplated getting into the small-car business in the 1970s, when rising fuel prices and urban congestion became serious concerns for the manufacturer of gas-guzzling luxury sedans.
The Smart brand was initially conceived as a new type of urban transport. Airports, hotels and rail companies were expected to buy and rent out Smart cars by the day or by the hour to help people get around in crowded cities.
But the plans did not materialize and the quirky ForTwo found itself competing in the cutthroat mass market. Although the car became popular with urban customers, its appeal was limited because the ForTwo was not designed for highway driving. Its top speed was 80 miles per hour.
To boost sales volumes, Mercedes expanded the Smart lineup. But with the new ForFour, developed jointly with Mitsubishi, Smart is now competing head-on with European small car specialists Renault SA, PSA Peugeot Citroen SA, Volkswagen AG and Fiat Auto SpA. Japanese and Korean automakers are crowding into the market, as are luxury carmakers, such as BMW, with its new 1 Series compact.
Andreas Sperling, a dealer in the southern German town of Esslingen, has sold Smart cars since their introduction. "With the ForTwo, there were no comparable cars in its class. But with the ForFour, we have to contend with an existing market," he said.
"In Esslingen, there is a strong Toyota dealership 500 yards away, so the Yaris (compact) is a big competitor," he says.
Sperling also manages a Smart outlet in the nearby town of Reutlingen that faces stiff competition from Volkswagen's Audi, VW and Skoda brands and BMW.
But since 2001, the European small-car segment has shrunk by half a million vehicles to around 3.8 million units as customers flock to new compact minivans.
To bolster sales in a shrinking market, Mercedes is urging more of its European dealers to offer Smart cars.
Company officials are also mulling more cooperative ventures, such as the Mitsubishi-Smart production deal in the Netherlands, to lower development and production costs for future Smart cars.
DaimlerChrysler CEO Schrempp is keen to retain small cars in the automaker's vast portfolio to expand the company's presence in Asia and other emerging markets. Some analysts believe DaimlerChrysler will be on the lookout for another Asian partner to pave its way into new regions and smooth out Smart's bumpy ride.
"It's self-evident that we have to look at all possibilities to make Smart profitable."
Text
