After nine years in the U.S. market, the Smart brand’s inroads here have been small. And with a move later this year to electric vehicles only, the prospects of Daimler AG’s microcar brand are about to shrink even more.
The strategy shift is enough to have many Smart dealers rethinking whether they’ll continue to sell the quirky ForTwo two-seater.
“Electric Smart vehicles make sense in certain markets, but don’t make as much sense in other markets,” said Ken Schnitzer, chairman of the Mercedes-Benz Dealer Board and owner of two Smart outlets in Texas. “So it might make some sense for some dealers to become service-only dealers.”
It’s a decision Schnitzer himself is weighing. His two Smart locations are in Dallas and Fort Worth, and he notes that EVs generally are not big sellers in Texas. “Drive times and range can make a big difference — it’s not like being in downtown San Francisco,” Schnitzer said.
Mercedes-Benz USA wants the verdict from Schnitzer and the owners of Smart’s other 83 centers by the end of June. The automaker’s U.S. chief seems prepared for a shrinking network.
“It might not make sense for some of the dealers, depending on where they are in the country, to continue,” Mercedes-Benz USA CEO Dietmar Exler told Automotive News. “That’s something we’re discussing with our dealers. But for electric-important markets, I have not had one conversation with a dealer who would not want to continue.”
Exler announced in February that the brand would shift exclusively to EVs in the U.S. and Canada this year. It is selling down gasoline-powered inventory now, and a redesigned electric ForTwo coupe and convertible will go on sale this summer.
One challenge: The electric ForTwo coupe will start at $24,550, including shipping, vs. a base price of $15,400, including shipping, for the outgoing gasoline coupe. Smart tried to mitigate the higher price by trimming $1,200 off the price of the redesigned electric coupe compared with the previous generation. The sticker on the Smart is less than on the larger Nissan Leaf five-seater, which starts at $31,545 and has more range. But the Leaf also carries high incentives, a whopping $16,296 average discount so far this year, according to Autodata Corp. By contrast, Smart’s average discount for the same period is $4,357.
Top 10 designated market areas for new Smart car registrations in 2016
For Smart, it has been a roller coaster nine-year stretch in the U.S.
Sales got off to rollicking start in 2008 with 24,622 Smart ForTwos sold.
Gasoline prices spiked to more than $4 a gallon, and car shoppers in a Kelley Blue Book study that year ranked fuel efficiency as the most important factor in their vehicle selection. (It’s now slipped to No. 7.)
Executives for Penske Automotive Group, which launched Smart as an independent distributor, said demand was strong enough to sell 40,000 Smarts that year if inventory had been available.
But by the end of 2008, gasoline prices had plunged, and auto sales were crashing as the U.S. spiraled into the Great Recession. Despite starting the year with 40,000 people who’d put $99 deposits on the car, Smart’s U.S. sales dropped to 14,595 in 2009.
The brand began offering incentives on the cars by the middle of that year.
Smart’s U.S. sales numbers in subsequent years have never come close to approaching the levels reached in either of its first two years here. By 2016, sales had tumbled to 6,211. They’re down 20 percent through the first five months of this year.
“Smart had a polarizing brand — it was a niche product, and it attracted a certain customer,” said Tony Pordon, Penske Automotive Group executive vice president of investor relations and corporate development. “They wanted to grow up with the brand. We did a lot of good things to bring the product to marketplace, but it needed another car. It needed more models.”
Larger models, such as a four-door Smart, were pursued, and Penske even struck a deal with Nissan to sell a five-seat subcompact under the Smart name in the U.S. beginning in 2011.
Nearly halfway through its 10th year in the U.S., Smart has sold just shy of 100,000 of its ForTwo 2-seat microcar here.
Smart began in the early 1990s as a joint venture between Daimler and Swiss watchmaker Swatch/SMH. After Penske made the Nissan deal, Daimler asked for the U.S. distribution rights back, saying it believed it could boost Smart’s sales, which would help it meet new corporate average fuel economy standards on the horizon.
In July 2011, control shifted back to Daimler, Smart USA was put under the umbrella of Mercedes-Benz USA and the Nissan car was scrapped. Smart dealers without an existing Mercedes-Benz operation, 21 in all, lost the franchise as Mercedes-Benz USA moved to have only existing Mercedes dealers sell Smart.
Though investment demands for dealers decreased — largely because they could operate Smart out of a corner of their Mercedes-Benz store — dealers and the brand have continued to struggle. Even when the first electric Smart ForTwo was introduced in the U.S. in 2013, sales didn’t benefit much. After a small bump in 2014 — the brand’s peak EV year with about 2,600 sold — Smart sales plummeted again as consumers shifted increasingly to SUVs and crossovers.
Now with only one nameplate and a niche powertrain, sales seem sure to keep dropping.
Exler predicts some of the gasoline-model demand will move over to Smart EVs, enabling the brand to push its overall sales higher than the peak EV mark in 2014.
“We’re hoping they will come up quite a bit from that point,” Exler said. “How high they go, we will have to see.”
He acknowledged it “might be a little bit longer” to catch back up to recent-year levels for overall sales.
IHS Automotive doesn’t foresee the strategy providing a lift for Smart. By 2020, the industry tracker is forecasting U.S. Smart sales of just 1,500 units.
“They’re definitely going to take a notable hit, but it’s part of larger strategy and a decision to go a bit different with it,” IHS analyst Stephanie Brinley said. “Mercedes has been dedicated to keeping Smart in the United States for a decade. They haven’t lit the world on fire with this car yet.” The overall EV market will expand and grow, though. IHS predicts it will make up about 310,000 vehicles in 2020, up from approximately 70,000 last year. A host of brands, including Mercedes, have rolled out plans for multiple new EVs.
The sales declines and weak forecast for Smart in the U.S. begs the question: Why keep it here at all?
Daimler’s decision seems to be a long-term play to help its corporate average fuel economy numbers, plus lay more of the groundwork for its electric-vehicle strategy, Brinley said.
Annette Winkler, Smart’s global boss, said she had to focus the brand given that the microcar segment in the U.S. is so small. “Smart can grow — it can grow in the Smart cities we are focusing on,” she said.
Those places include San Francisco, New York, Los Angeles, Miami and Portland, Ore. Dealers in markets such as those — extremely dense urban settings with tight parking and even a propensity toward car-sharing fleets — are expected to stick with the brand, Winkler and Exler indicated.
Others also could stay because it won’t cost them much, and it will serve as a goodwill gesture toward the factory.
That was the initial thinking of the leaders at Germain Motor Group in Columbus, Ohio. They came away from the February announcement planning to stick with Smart sales even though low fuel prices and waning demand for small cars make it tough timing for the electric-microcar segment now. That approach in part was aimed at supporting the retailer’s relationship with Mercedes-Benz.
But Germain COO John Malishenko said the company is now rethinking whether to hang on to Smart. The potential shift was prompted in part by the offer by Mercedes-Benz USA to let dealers continue to service Smart cars for four years even if they chose to no longer sell the brand, he said. “We’re still discussing it and have not made a definitive decision to stay or go at this point,” Malishenko wrote in an email. The impression given by Germain’s contacts at Mercedes is “that we wouldn’t be seen as unsupportive if we decided to stop selling Smart.”
Even the retailer that brought the brand to the U.S. is rethinking it. Penske executive Pordon said the retailer is evaluating its six U.S. Smart locations — fewer than it operated when it ran the distributorship — and likely will come up with a hybrid solution where it keeps selling at some and goes to service-only at others.
“I just don’t know what the number will be,” Pordon said.
Unless Smart can enter some new segments — bring out a four-door subcompact, even a mini crossover — and dramatically increase its electric range from up to 80 miles today, the brand will very much remain a city car viable only for fairly specific urban markets, said Akshay Anand, a Kelley Blue Book analyst. While more electric competitors should help create interest and lift overall EV sales, Smart could suffer in comparison on size and range.
Said Anand: “With only the ForTwo, it’s just a really tough sell.”
Jamie LaReau and Richard Johnson contributed to this report.
Deal announced to sell Smart cars in the U.S. through Penske distributorship Smart cars on sale in the U.S.; 24,622 sold that first year Mercedes-Benz USA announces it will take over Smart distribution in the U.S. from Penske As Mercedes takes over, some stand-alone Smart dealerships close and more Mercedes dealerships start selling the brand Smart finishes transition year with U.S. sales of 5,208, which would be the lowest recorded in its 9-year U.S. history Mercedes announces it will drop gasoline-powered Smarts in the U.S. and Canada and convert the brand to electric-only Deadline for Smart’s 85 U.S. outlets to decide whether to keep selling the brandSource: Automotive News Data Center, Mercedes-Benz USA