Small Wasn't Smart

The minute commuter car has turned out to be an oversize drain on profits
By PETER GUMBEL
Posted Sunday, Oct. 09, 2005
It seemed like an extremely clever idea at the time: a stylish two-seater commuter car that would be ideal for city traffic, small enough to fit in the tiniest of parking spots and highly fuel efficient. It seems like an even better idea now. But 11 years after Mercedes dreamed up the idea with Nicholas Hayek, the creator of Swatch watches, the minute Smart car has become an oversize drain on the automaker's profits. In the first six months of this year, Mercedes plunged into the red because of a massive $1.3 billion restructuring charge it took for its Smart operations.

Smart's woes are typical of the troubles afflicting the entire Mercedes group. The car's manufacturing costs are far too high, especially given its relatively small scale--last year the company sold just 150,000 of them. Smart's managers were overly ambitious in developing new models too quickly, according to company officials and analysts. Hayek long ago dropped out. But even before the original model he helped to inspire had established itself, Smart moved on to new territory: the model range was extended to a four-seater, a roadster and a planned SUV.

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