Small Digs for Small Company

BLOOMFIELD TOWNSHIP, MI – Another auto maker is calling the Motor City home, but Smart USA’s new headquarters will not be confused with the imposing towers that house the main offices of General Motors Corp., Ford Motor Co. and Chrysler LLC.

Smart’s headquarters north of Detroit reside in a former Toyota Motor Sales dealership. The space actually was more than Smart needed for its minimalist U.S. offices, so part of the building is used as a Smart retail outlet, the only one in metro Detroit.

In total, some 50 people are working there – about 20 dedicated to the dealership and 30 to the company’s administrative operations – as Smart begins selling its miniature 2-seat Fortwo city car in the U.S. the week of Jan. 14.

“We have a small car and a lean staff,” says Dave Schembri, president of Smart USA. “Sometimes less is more.” Schembri anticipates a grand opening of the facility in the spring.

Within a month, Smart expects to have 68 U.S. dealerships in major metropolitan markets, as well as Virginia Beach, VA; Omaha, NE; Jackson, MS; Hartford, CN; Jacksonville, FL; Tulsa, OK; Milwaukee, WS; and Salt Lake City, UT.

By the end of 2008, the auto maker plans to add six more outlets to the network, although Smart USA received more than 1,400 franchise applications.

Penske Automotive Group, the second-largest automotive retailer in the U.S. and a closely held transportation services company, is leading distribution of the Fortwo. Roger Penske is chairman of Smart USA and Penske Automotive.

Of the 74 Smart dealerships anticipated by year’s end, Penske Automotive will own nine.

Smart executive says there is real possibility Fortwo in U.S. may offer start-stop capability.

The Fortwo is bound to stand out on U.S. roads, where many motorists only are accustomed to seeing vehicles of this size on the golf course. Its proportions are truly odd: about half the length of a Toyota Avalon sedan, yet more than 2 ins. (5 cm) taller.

In Europe, however, the Smart car is common. Some 770,000 first-generation models sold after its launch in 1998 at a new plant in Hambach, France. Daimler AG’s Mercedes-Benz unit led development of Smart, bringing to life the vision of Swatch watch inventor Nicolas Hayek.

Schembri is steering clear of first-year U.S. sales projections for the Fortwo. But the auto maker has gauged the market and conducted heavily attended consumer test-drive clinics across the country.

More than 30,000 people have plunked down a refundable $99 to reserve a Fortwo. “We have at least initial demand for the car,” Schembri says. “And we have a flexible-production factory,” allowing output to match demand. “The plant services the entire world. Much of our capacity in France is based on demand worldwide.”

The falling value of the dollar relative to the euro has made it more difficult for Smart to sell the Fortwo profitably in the U.S.

But Schembri says the exchange-rate fluctuation was taken into account when pricing (starting at $11,590) was announced in September. Even if the value of the dollar drops further, Fortwo prices are fixed for the rest of 2008, he says.

Small, inexpensive cars are plentiful in America these days, and more are on the way. But Schembri doesn’t see the Fortwo being cross-shopped with the numerous subcompacts now available, most of them priced competitively with the Smart car yet offering twice the space and more power.

“That’s because the Fortwo is a car that transcends traditional buying segments,” he says. “The first-time buyer might be attracted because of price, and the metropolitan dweller because of urban

functionality. The Boomer, like myself, wants it for his teenager or as a third car. Empty-nesters might want it because they don’t need a back seat, or for a second or third home.”

Schembri is counting on an emotional connection with a particular breed of buyer smitten with the Fortwo’s quirky, fun disposition – and its ability to change people’s perceptions about their transportation needs.

“The Fortwo is 2.5 ft. (0.7 m) shorter than any other car in the U.S. today,” he says. “There’s a uniqueness to it.”

If buyers are looking for fuel economy, the Fortwo gets 33/40 mpg city/highway (7.1-5.8 L/100 km), based on the Environmental Protection Agency’s new test cycle.

In Europe, the Smart already is available with a “micro-hybrid” start-stop system that turns off the engine during idle, improving fuel economy about 15% in normal city driving.

Schembri tells Ward’s “there is a very real possibility” the Fortwo in the U.S. will become available with the micro-hybrid system.

A 4-door Smart, the ForFour, also was available in Europe but was discontinued in 2006. Schembri says there are no plans for a 4-door Smart for the U.S.

With the unique nature of the Fortwo, Schembri expects sales volumes of the coupe to be healthy enough to establish a new U.S. segment for microcars.

“We fully expect the Smart Fortwo will become a permanent fixture in the American automotive culture,” Schembri says.

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