Why the Smart Car fell short

Sensing the need for a compact car in overly crowded cities around the world, Daimler Motor Company set out to develop the Smart car in 1998. Measuring a mere 106 inches long, Smart offered a Customer Value Proposition of being a reliable, two-door alternative to traditional bulky four-seaters—especially in an urban setting. However, as Chris Reiter argues in his Business Week article, How BMW's Mini Trumped Daimler's Smart Car, Daimler’s strategy fell miserably short. Three years after its introduction, Smart had been surpassed by BMW’s Mini—an auto of similar design that offered slightly more room (four seats and 146 inches long), while maintaining its label as a “compact car”. Following Mini’s domination of the compact car market, Smart incurred more than $5.3 billion in losses. What factors dictated such a miserable collapse? Here are the leading causes:

Miniscule Market

Although the demand for smaller, more gas-efficient cars is eminent, very few auto consumers are looking for a car with just two seats. Even the younger, single crowd finds it inconvenient being unable to accommodate more than one passenger at a time. As explained by Ferdinand Dudenhoeffer from the Center of Automotive Research at the University of Duisburg-Essen, “The niche for two-seaters isn’t that big.”

Elevated Costs

Smart’s unique production process requires specialized engineering—drastically increasing its costs compared to other compact cars. For comparison, the Toyota Yaris ($12,517) and Nissan Versa ($12,337) (both four-door, four-seaters) come in at almost exactly the same price as Smart ($12,490). Further, due to pricy features such as a semiautomatic gearbox, turbocharged engine and electronic stability system—Smart has all the makings of a luxury vehicle. Clearly, Daimler has strayed from Smart’s CVP as an inexpensive, simple vehicle. With a younger, less affluent target market such price markups can significantly damage sales.

Lack of Versatility

Until recently, Daimler has stuck with Smart’s original model, the “fortwo”, without offering any significant variation. In contrast with Mini, which by adding a roadster and coupe-like crossover this year will bring its arsenal up to seven different models, Daimler’s fortwo remains unchanged and boring in the eyes of consumers. With no option for an upgraded engine or accessories such as rear spoilers, many are turning away from Smart and looking towards Mini.

Although Daimler has finally addressed its lack of variety by introducing a battery powered car and electric bicycle set to launch in 2014, the company cannot justify its heavy annual losses for two more years. Given Mini’s recent domination, the Smart car has become completely obsolete and won’t stay afloat to see the launch of its two new concepts.