Two of the Biggest Launch a (smart) Little Car for the U.S.

By Marty Bernstein

AIADA Contributing Editor

You don’t get much bigger in the automobile industry than Roger Penske and Dieter Zetsche; they epitomize auto industry success, but with different roads.

Penske first made his reputation in racing, then through expansion into a variety of businesses – Penske Corporation, Penske Leasing and Penske Concierge – including, one of the largest and most profitable luxury automotive dealer organizations anywhere, the publicly owned UnitedAuto Group, with 171 dealer franchises in the U.S. and 123 internationally.

Zetsche was responsible for turning around the troubled U.S. division of DamilerChrysler and was rewarded with a major promotion to chairman and chief executive officer of DCX worldwide, and now also heads the Mercedes-Benz division. He’s a television star as Dr. Z., the corporate spokesperson in recent commercials for Dodge, Jeep and Chrysler.

So, now these icons of industry have joined together to bring the cute, affordable, fuel efficient, but not profitable (losses estimated at $2 billion from its founding eight years ago) smart car to the U.S. No, that’s not a typo; the smart car brand is always in smaller, lower case letters… a play on the brand’s unique smallness.

Where’s the smart in Times Square?

A little history

The little car began as an idea from Swatch, the Swiss watch company, which is a favorite of the younger generation. They joined with Mercedes to create and produce the vehicle. In fact, the name smart is an amalgamation of names: S for Swatch, M for Mercedes and Art for art’s sake.

For a number of reasons the joint venture did not work out and Mercedes became the total equity owner in 1998. Over 750,000 Smart cars have been sold in 36 nations around the world. Each nation has a website in native language – check them out at www.smart.com.

In addition, to the three basic smart car models, with their quirky but descriptive names, there’s a long list of accessories, clothing and optional equipment available. On a trip to Italy a few years ago, I saw a smart store in Rome, just off one of the most famous shopping streets in the world.

A little update

Just a few weeks ago, Zetsche announced that Penske’s UnitedAuto Group (UAG), a retail juggernaut that get’s 90 percent of its revenue -- $9.4 billion in sales last year – from international brands, will become the distributor for the Mercedes-owned smart cars.

Dave Schrembi, a veteran auto marketing executive previously with Mitsubishi and a few years ago with Mercedes-Benz as VP of the smart division, was named president of the new “smart USA,” now a UnitedAuto Group company.

[Think about this situation and the players for just a moment, because it is a little odd: A luxury car retailer (UnitedAuto Group) has become the distributor of a brand of inexpensive vehicles (smart) owned and manufactured by a huge automobile manufacturing and marketing company (DaimlerChrysler) with its own luxury brand and distribution source in the U.S. And the new president (Schrembi) of the new company (smart) has previous experience in bringing the brand to America by the parent company (Mercedes).]

Told you it was an odd juxtaposition.

In an attempt to end the confusion, sort out the facts and learn more, I arranged a meeting with Dave Schrembi at UAG’s corporate headquarters in suburban Detroit just a few weeks after the formal announcement was made that the dealer group will distribute smart cars in the U.S. Schrembi was so new on the job that his business card was handwritten/updated from his old card at Mercedes.

One-on-One with the big guy at the little car company

Dave Schrembi, President of smart USA

MB: What vehicles will the new smart bring to the U.S. and when?

DS: The first car will be the ForTwo model and it will be sold at retail in the first quarter of 2008.

MB: For those unfamiliar with the brand, what is this model?

DS: The style name, ForTwo, means the vehicle is for two people and is the best-selling model from the company. All the models smart builds have names that have a relationship to the car. I think it’s certainly a clever way of expressing the utilization of the car.

MB: What are some of the features of the ForTwo?

DS: The ForTwo is unique. It’s unique in almost every aspect. Certainly, from its appearance, I don’t think there is anything on the road anywhere that looks something like it. But the appearance wasn’t the only thing designed to be different. It was designed that way … and is defined by some of the safety aspects of the vehicle.

MB: The appearance is different; does it serve an aerodynamic function?

DS: The interesting shape of the car is a result of the safety cage that was developed for a vehicle of this size. It’s referred to as the Tridion Safety Cell. This is a steel cage that protects the occupants and has resulted in a tremendous safety record since its on-road debut seven years ago.

MB: I’ve read the smart car sold in Europe has a two- or three star safety rating, what do you expect it to have here?

DS: The vehicle coming to the United States is expected to have a four star rating. When it comes here it will have four airbags standard – two front and two side airbags that include head and thorax protection. It will have ABS standard and ESP too, in addition to cornering assist and other safety features usually reserved for luxury vehicles.

MB: Will the price level from Europe be exported to the U.S.?

DS: The price level we’ve discussed thus far is an entry level MSRP of less than $15 thousand … and we’re excited about that price for the vehicle and most people who have looked at it have said, “that’ll work!”

MB: Considering the size, I assume the smart gets good gas mileage …?

DS: The mileage will be in the 40 mpg range when it arrives here.

MB: Will you bring any additional smart models to the U.S.?

DS: Right now we are focused on the ForTwo, but we will have a coupe version and fully retractable cabriolet sometime in the future.

MB: When you were at Mercedes-Benz, wasn’t there a plan to bring in a smart SUV?

DS: The decision has been made that smart should focus on its core business and the core product which is the ForTwo, and yes, there was a plan to bring in a smart SUV, but that plan was cancelled.

MB: This has to be a managerial switch for you … coming from a position where, as the manufacturer, you control the product to that of a distributor. How will this affect you and the business operations? Any subtle shifts in dealing with the retailers?

DS: This is the best of both worlds, especially for a car-guy like me. I have the opportunity to work on both the distributor and dealer sides of the business. Being directly involved with the UnitedAuto Group gives me the opportunity to deal directly with the retail world. And also on the distributor side, I’ll be able to utilize my OEM experience and skills to build an effective distribution system. I’ve worked retail and wholesale in my business life and love both ends of the business – especially, working with customers.

MB: Will smart utilize the UAG infrastructure for parts, etc.?

DS: One of the advantages of smart being a division of UAG will be the opportunity to utilize the tremendous infrastructure of the company. It’s a real benefit.

MB: What other UAG corporate services such as leasing and financing will be used by smart?

DS: We’re in the very early stages of development and have not yet determined what specific corporate resources will be utilized.

MB: How are you going to qualify and quantify additional prospective smart retailers?

DS: Our goal is to find the 30 to 50 best dealers who can best represent the smart franchise in the United States. We’re very early in the process and have not yet determined criteria or specific locations yet, but we will be doing that in the next three of four months.

MB: I know UAG has 8 Mercedes-Benz dealers, will they be given preference?

DS: We’ve said right from the start that DCX dealers and UAG dealers will be given preference in the selection process. But other dealers will be considered as well. It is our expectation to start naming dealers and locations in the second half of 2007.

MB: Both Scion and Mini followed the plan of opening in existing dealers rather than separate locations; will smart use this pattern too?

DS: We haven’t yet made that determination, so it’s too early to speculate. But Scion and Mini are both excellent models and they’ve both been extremely successful. So, we will take a close look at both of them.

MB: What has the reaction been to the announcement of smart coming to the U.S.?

DS: I’ve never in my career seen so much enthusiasm from all stakeholders. That’s what is so exciting about a brand like smart: it starts with an interest in the product. We established a website on June 28, 2006 because we knew when we made the announcement people would want to know when, where and how. We had an 800 number with a live person to answer their questions. In less than a month from that announcement, we received over 200,000 consumer inquiries. Amazing!

MB: What about calls from prospective dealers?

DS: We’ve had over 350 calls and inquiries about dealerships in the U.S. and this is after publicly announcing we are not yet ready to discuss this aspect.

MB: Press response?

DS: It’s been outstanding. This car is a magnet for attracting attention. When you park this vehicle, it’s almost a mob scene – but in a fun way. The car is fun to look at, it’s fun to drive; yet, it’s a serious automobile. It’s the answer to a lot of the problems of today – environmental issues, gas consumption, and crowded urban areas and parking places. Smart is the perfect car at an ideal time in the history of the nation. We feel very fortunate that we are involved with the smart brand on the distributor side of the business.

MB: Is there a specific target group for the smart car?

DS: This is not a brand about age or income or education. It’s about attitude and lifestyle and that keeps getting proven over and over again no matter where we go.

MB: Where will the sales come from, urban vs. suburban (urban, as a state of mind, not a geographic location or ethnic description)?

DS: You’re so right – it is a state-of-mind. And Canada is proving that with the way their smart is being sold. The car can be so many things – your prime car, your other car or your first car. The majority of all our trips in a car are taken by our selves. So, why waste the energy, space when we don’t need the capacity and size?

MB: Future success makes lots of sense, but is it the right time and place?

DS: 750,000 ForTwo’s have already been sold around the world in 36 countries. The U.S. will mark the 37th nation to sell the smart.

MB: I know it’s early, but what marketing will be undertaken?

DS: It will be experiential marketing. You need to get people behind the wheel of this vehicle to experience the fun of driving it. It’s almost shocking to some people, how much room they have. It has nearly as much leg and probably more headroom as some luxury vehicles.

MB: Background from M-B Smart to this – no learning curve was necessary, right?

DS: It was exciting while I was there, and certainly that excitement has been enhanced through the announcement that we are finally coming to the U.S. It’s a unique product in that the product defines the brand: smart!

Two big names, one little car… is this an equation that will work? While the past is usually prologue, the car buying attitudes of American’s have changed dramatically from big and bigger to small and smaller. The rising cost of gasoline per gallon has had and will continue to have significant impact. So, small is in. And the fact that the smart car is cute, affordable and safe won’t hurt either. Yet, with all it has had going for it, I have to wonder why smart has lost so much money despite sales approaching 1 million units? But I’m not smart enough to figure that out.