Not so Smart: Green car runs into trouble

Last week’s strategy row at Smart was the latest to hit the Mercedes-backed venture. Is there a market for eco cars?

Mercedes’ commitment to the mould-breaking two-seater Smart car has always been open to debate following its decision from the outset to keep its brand name off the model.

Two years after launch, ructions at the top of the organisation have drawn attention yet again to the car’s stalling progress.

Lars Brorsen, chairman of the board of Micro Compact Car (MCC), the DaimlerChrysler subsidiary which produces the Smart, last week stepped down after what were enigmatically referred to as differences over strategic direction.

Jurgen Hubbert, the DaimlerChrysler director responsible for the Mercedes-Benz brand, has been drafted in until a replacement is found.

But the car has been dogged with problems since its launch in 1998. Designed as the ultimate environmentally friendly model, the Smart suffered from stability faults in safety tests. As a result, the launch was postponed and the chassis and wheel base had to be redesigned.

The Swatch group, which had originally been a joint partner with Mercedes-Benz in the Smart venture, pulled out in autumn last year.

The Smart has also fallen short of targets this year. Sales expectations for the car, which is available in seven markets in Europe, including Germany and The Netherlands have been trimmed from 130,000 to 100,000. And the company has said that it does not expect to make a profit on the Smart until 2005.

“It has had a tough gestation,” says one agency source with knowledge of the car market. “I’m not surprised there has been a difference of opinion at the top of the organisation. It is always difficult for manufacturers to step into a new segment and get it right first time. And it is difficult to migrate downwards as Mercedes has done.”

Some industry sources have suggested that Mercedes could offload the car.

Professor Garel Rhys, of Cardiff Business School’s Institute of Automotive Industry Research, says: “Mercedes insulated itself successfully by not attaching its name to the product. It was uncertain about the car and this was a way of ring-fencing the problem and stopping any of it affecting the Mercedes brand.”

Keeping the car within the MCC subsidiary means a sale would be straightforward. But the company maintains that it has no plans to sell Smart, although it says it is in talks with potential partners, including Peugeot, Fiat and Nissan.

A spokesman for Mercedes UK says: “We have been talking to Peugeot about the supply of parts and it may have some potential involvement in the future.”

The fundamental proposition of the car seemed sound when it was conceived in the early Nineties. The environment was the major issue and Germany, Daimler-Benz’s domestic market, had a powerful green lobby.

The Smart was designed as a car for the environment which could be part of an integrated transport system. With a maximum speed of 85 miles per hour, it was assembled using green processes and took up less room on the roads. But Rhys points out that positioning the car simply as an eco-friendly vehicle was not enough.

“I think the Smart has been a lesson – not just to companies but also to government – about what consumers actually want. There is no money to be made from a car which makes the environment the single most important feature.”

He points out that the proposition was based on the fact that eight out of ten journeys were short and therefore could be covered by the Smart car. However, owners would then need another car for the other two journeys. “The car was always going to be a discretionary purchase and this is a great commercial problem,” says Rhys.

But despite its problems, there are glimmers of hope for the Smart. In the UK, it has achieved cult status, with many people importing left-hand drive models from Europe. The latest converts include former motor racing driver Stirling Moss.

In Germany, the Smart has moved up to third place in the small car market behind Volkswagen’s Lupo and Renault’s Twingo. And sales in the past quarter have started to run at an annualised rate of more than 100,000 units.

At the Frankfurt motor show last week the company unveiled a two-seater cabriolet concept Smart car and there is talk of a next generation four-seater Smart. A spokesman for Mercedes in the UK says MCC is also considering launching a right-hand drive version of the car for the UK market.

DaimlerChrysler’s defenders are also quick to point out that this was a courageous move for the company and it was always going to involve risk.

Richard Pinder, managing director of Ogilvy & Mather, says: “When you break new territory as a manufacturer you are never sure whether it will work. I think this has taught the company a lot and often the second generation of any car is superior.”

One thing is for sure, the environmental factors which seemed so marketable in the early Nineties have not been enough. The Smart needs more than eco-friendliness if it is to succeed in making a profit in six years’ time.

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