U.S. dealers have begun the mad scramble to obtain one of DaimlerChrysler AG’s U.S. Smart franchises.
The rush follows the German auto maker’s announcement that it will bring the microcar to the U.S. in 2008 using the public dealer group, the United Auto Group, as the brand’s distributor.
With only 30-50 initial franchises slated to be available, and possibly a second wave of approximately 50 more should sales remain strong, competition will be tough.
UAG stores and dealerships in the DaimlerChrysler family likely will get first shot at Smart. Other dealers will have to fight for whatever is left.
Roger Penske, UAG’s president and CEO, tells investors during the company’s recent second-quarter earnings conference call, he does not envision a preponderance of UAG dealerships getting the franchise.
“Hopefully, we’ll have some stores qualify in some markets,” he says.
However, any dealer landing a Smart franchise will be required to have extraordinary customer-satisfaction scores and a proven record as an automotive retailer.
“We’ll be looking at CSI (customer-satisfaction index), location and facilities,” Penske says. “Let’s get the right dealers in the right marketplace.”
Despite what likely will be strict requirements, dealers are showing interest.
“We have received a lot of response from dealers about it,” says Anthony Pordon, senior vice president-investor relations for UAG. More than 400 dealers have contacted UAG requesting information about obtaining a franchise.
Sheldon Sandler, founder of Bel Air Partners in New Jersey, says dealers have been calling his firm about Smart. “Not that we have any influence,” he says.
Christina Dawkins, owner of Cos BMW in Loveland, CO, says she would like to obtain a Smart franchise, having missed out on getting one of the Mini dealerships a few years ago.
“It would be perfect for us,” she says. “We’re in one of the country’s fastest-growing areas, and we’re just a few miles from a large college.”
Nancy Phillips, a dealership broker in New Hampshire considers Smart to be an intriguing opportunity for dealers. “I would certainly advocate trying to get one of those stores,” she says.
Other public dealer groups have expressed interest, as well, according to Penske. “We’ve seen some very interesting proposals,” he says. “It’s going to be a lot of fun for me to determine who the best dealers are.”
Dealers will have to wait a several months, as the Smart distributorship is not licensed yet to do business in the U.S. “It is very early in the process and may even be too early for us to talk about how we are going to set up the brand,” Pordon says.
Dealers will have to invest from $200,000-$250,000 in the Smart franchise, which includes signage and facilities, Penske says.
For DaimlerChrysler-brand dealerships, Penske says the model will follow Toyota Motor North America Inc.’s lead with its Scion brand, setting aside a distinct area in the showroom. Other dealerships likely will have separate facilities for Smart.
Dealers will have three redesigned Fortwo models to sell. The brand also will push accessories and personalization, which helps increase the dealer’s profit.
Pordon says UAG plans to begin announcing its Smart dealers in mid-2007, with vehicles hitting the showrooms in early 2008.
While UAG officials refrain from discussing specific markets, key regions will include New York City, Seattle, San Francisco, Los Angeles and southern Florida.
Pordon hints at other areas, saying UAG has “learned not to ignore secondary markets” that are seeing population growth and have a college or a strong creative community.
Not everyone is convinced Smart is a good move for Penske. A recent Forbes.com article argues Smart was designed to solve a European problem of having tight and cramped spaces for vehicles, generally not an issue for Americans.
The article also says small cars will be an old concept by the time Smart makes it to the U.S. and questions whether Americans will want to sacrifice size and convenience when there are other fuel-efficient vehicles available.
Industry analyst Jerry Marks, in his newsletter, “AutoRetailStocks.com” writes that Smart will create “incremental revenues” for UAG but wonders if “having to oversee dealers outside of their network may create more headaches five years from now than it was worth.”
Another issue is whether Americans will consider Smart to be safe vehicles. Even Phillips, who thinks the brand is a great idea, questions whether she would want her children driving one.
UAG officials already are on message, touting the advancements being made to the new models, including powertrain, suspension and safety features. UAG will begin showing European versions of the new models in early 2007.
Penske believes he has a potential hit, pointing to stronger-than-expected sales in Canada of the diesel Fortwo.
And interest appears to be high in the U.S. In the two weeks following DC’s announcement, Smart’s U.S. website received more than 200,000 hits, with 8,400 people registering for more information.
Another positive development for Smart is Hollywood’s treatment of the microcar in recent movies, such as the Da Vinci Code and The Pink Panther starring Steve Martin.
“We were very happy with how they treated the vehicle in those movies,” Pordon says.
