Payne: Sinking Smart ends gas car sales, turns to EVs

Posted by hpayne on February 27, 2017

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In 2008, Germany’s Smart Automobile, the maker of the two-seat ForTwo microcar, opened the first of 85 U.S. dealerships in Bloomfield Hills. The company hoped to catch a wave of customer sentiment for small cars amid rising gas prices. That wave never came.

Mercedes-Benz, which owns Smart, last week announced it is discontinuing sales of gas-powered Smart cars in the United States. Only electric Smart cars, which have been available since 2011, will remain.

Smart was never a good fit from the beginning for the U.S. market – and that was before gas prices fell and Americans increasingly snapped up sport utility vehicles. After early adopters snatched up the first 25,000 ForTwos, sales of the Smart never exceeded 10,000 in a year. Only 6,211 were sold last year.

“Gas prices were heading higher at the time, and Mercedes thought that a small car would appeal to millennials as we become a more urban society,” says Kelley Blue Book Senior Auto Analyst Rebecca Lindland. “It didn’t happen at all.”

An all-new Smart electric car is due this summer. In an echo of its 2008 strategy, Mercedes hopes that Smart EVs will ride a new trend for electrics, despite equally daunting signs that Americans are no more enthusiastic for EVs than subcompacts. Despite over 50 new entries in the market since 2009, sales of battery-powered cars are less than 2 percent of the market.

“In 2008 gas prices were headed to $4 a gallon, now they’re half of that. The entire small car segment is down 35 percent,” says Bob Gabardy, General Manager of Suburban Mercedes/Smart of Ann Arbor, which took over Michigan’s Smart franchise last year. “But Mercedes always planned Smart to be a progressive brand and the EV is a step to a sustainable, zero emissions future.”

The new electric strategy, says KBB’s Lindland, “makes sense only as a way to help Mercedes meet California’s strict zero emissions mandates for 2025. The Smart gas cars also made sense to Mercedes as way to meet federal fuel economy standards.”

Skies looked brighter in January 2008 when Smart planted its flag on Telegraph Road just south of Pontiac. The eight-foot long Smart – a common sight in cramped European cities where it can legally park nose-first into curbs – was cute. It even had the blessing of Roger Penske, the Troy entrepreneur with the golden touch whose dealership network, Penske Automotive Group, was given exclusive rights to sell the microcar.

“Penske and Daimler AG could not have chosen a better time to launch Smart here,” The Detroit News wrote in late 2007. “The recent precipitous rise in fuel prices … have made a small, economical car more attractive to Americans than at any time since the 1970s oil crisis.”

Mercedes’ choice to launch Smart in Metro Detroit seemed bold, given that the sprawling freeway city is a long way from the dense streets of Europe where ForTwo had achieved moderate sales success since its 2001 launch. Smart offered two variations of the ForTwo: a coupe starting at $11,590 and a $16,590 cabriolet.

Dave Schembri, president of Smart USA, told The News in 2007 that Americans were attracted to Smart “because there are very few other vehicles outside the luxury segment that have emotional appeal.”

By 2011, Penske turned the franchise over to Mercedes after sales fell off a cliff to 5,927 units in 2010. Mercedes-Benz of Bloomfield Hills on Woodward was the sole Michigan seller of Smart cars before the franchise moved to Suburban Mercedes in Ann Arbor.

Despite its small size and three-cylinder engine, the ForTwo got just 40 mpg, not much payback for a car with the storage space of a grocery cart. And the automotive press reviews were brutal.

“The (Smart) is plagued by (a) slow-shifting transmission, a lack of power, excessive squat and dive, and sensitivity to gusts of wind,” wrote Car and Driver in one of the kinder write-ups.

Mercedes was not alone in its misreading of the market: Toyota’s Scion IQ, the Fiat 500 and the Mazda 2 also did bellyflops.

“It turned out the last thing millennials wanted was a microcar,” says auto analyst Lindland, who has been a Smart skeptic.”Gas prices came down to earth, crossovers became more fuel efficient, and it turns out millennials wanted functional crossovers just like everyone else.”

Smart even struggled in Mercedes’ ride-share service, Ride2Go. “If customers wanted a two-seat car in the city, they would just call a taxi,” says Lindland. “And they weren’t going to go to Ikea in it. Ride-share services have found that even their customers want four-doors with room.”

In January, Mercedes announced it was replacing Car2Go’s Smart cars with larger, gas-powered Mercedes GLA crossover and CLA sedans – a sign the writing was on the wall for Smart.

For all its setbacks, Mercedes Ann Arbor’s Gabardy is bullish on the electric ForTwo’s future in politically green Ann Arbor. Built on an all new platform, the EV will arrive this summer with an estimated $25,000 price tag (before government tax credits) and 80-mile battery range.

“Being familiar with the parking situation here in Ann Arbor, I can park three ForTwos in one parking space,” he says. “People are more progressive thinkers down here, and I think young folks are going to like the EVs.”

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