Launching the Smart microcar brand was, in hindsight, not very smart on Daimler’s part. The little cars never quite caught on to the degree they were expected to, and the brand is believed to lose hundreds of millions of dollars each year. Given those kinds of loses, brand’s fate will be decided by the end of the year, according to German business newspaper Handelsblatt.
Daimler introduced the tiny urban runabouts in 1998. The Smart brand has never met Daimler's initial sales target of 200,000 cars, peaking at 150,000 cars worldwide in 2004. Smart sold 130,000 cars last year, down 4 percent from 2017.
Daimler does not outline each brand’s financial results, but analysts believe the German automaker has lost billions on the brand since its introduction, and they remain skeptical of its chances of success. "We can't see how a German microcar business can generate a profit, costs are simply too high," Evercore ISI told investors. Evercore places Smart’s annual loses at between $565 million and $792.
Smart cars are exceptionally small and easy to park in crowded European cities, but they don’t have commensurately excellent fuel economy compared to many small cars. On top of that, they’re not practical at all.
Given that Daimler saw profits fall 30 percent last year, its patience with Smart is growing thin. The brand also is about to lose a vocal advocate in CEO Dieter Zetsche, who retires at the end of May. His anticipated successor, Daimler production development boss Ola Källenius, apparently is not a fan of small, underpowered cars that lose money. Källenius came up through the ranks through Daimler’s AMG performance group and is said to favor big, powerful, profitable cars.
“Ola has no history with the Smart,” and has “no scruples about killing the brand if necessary” a Daimler insider told Handelsblatt. Källenius has confirmed that Daimler will make a decision by the end of the year. In the meantime, Smart brand head Katrin Adt reportedly continues negotiating with BAIC, Daimler's Chinese partner on the joint venture, on developing the next generation Smart cars.
Smart started in 1989 as a joint venture between Daimler and Nicolas Hayek, who founded Swatch. Micro Compact Car AG built a factory up in Switzerland in 1994, but costs spiraled out of control and Hayek bailed out. Daimler was awash in money in the 1990s and introduced the first Smart two-seater in 1998. It sold about 80,000 of them.
By comparison, BMW sold 144,000 new Minis when the revamped brand debuted in 2002. It sells about 360,000 Minis annually.