| | The car without the Smarts
By Luke Johnson (Filed: 13/03/2005)
In consumer products, design and an understanding of the consumer are everything - just take a look at the saga of the Smart Car.
This was launched as a bold venture between Swatch, the Swiss watch makers, and DaimlerChrysler in 1998 after four years of development. Mercedes wanted a small car sub-brand to compete with German specialists like Volkswagen - which had been the original Smart car partners with Swatch in 1991.
A new factory was opened in Hambach in France, and over $1bn pumped into the project as start-up investment. The idea was to produce a very small two-seater vehicle with incredible fuel economy, a funky car which could park front-on to the pavement. The plan called for sales of 200,000 cars a year for the scheme to break even.
The project was beset by dif-ficulties from the start. The Swatch founder, Nicholas Hayek, obviously saw the obstacles and pulled out in 1998. Initial sales were a 10th of target. There were serious safety concerns among the public.
Overall, the quirky car has accumulated losses of $2bn (£1.04bn) in the past six years, and is projected to lose at least another $500m in 2005. Indeed, Smart is estimated to lose at least €3,000 (£2,096) per vehicle - almost four times as much on a per-car basis as Fiat lost in 2002 at the depth of its financial crisis.
Smart is still only selling 160,000 vehicles a year, and analysts reckon at current levels of pricing and cost structures they need to double volumes to 330,000 to make money. Meanwhile, Mercedes has been repeatedly forced to deny rumours that it plans to shut or sell the business.
The vehicle range has been expanded to include a "Forfour", a larger version of the original two-seater. But the marketing and development costs of this will only delay any possible break-even date. The total write-off, if they were to close the plant, would be at least $3bn. This is an extraordinary amount of money to lose, even for a car giant like Daimler with annual sales of €140bn.
It is especially painful because it is a subsidiary of Mercedes Cars, which is already suffering serious problems with product quality and a recent collapse in profitability.
Meanwhile its German rival BMW has by contrast enjoyed a smash hit with its revived Mini. Over 5m were made from 1959 until Rover stopped production in 2000, making it the most successful British car ever. BMW relaunched the Mini in 2001, and has so far sold 500,000 of the new version. This British-made runaround outsells the Smart car at better prices, and the manufacturers are struggling to keep up with demand.
Indeed, there are plans to expand the Oxford factory to ramp production up to 250,000 a year following a further £100m investment in the Cowley plant announced in February.
It seems that the classic Mini feels cool, while the Smart car is just impractical. The designers of the Smart car forgot that customers don't buy a car because it's convenient to park - they buy it because it makes them look good, and because it's useful and comfortable. The Mini is four feet longer and so has much more space, and can travel at higher speeds and offer more comfort. Few buyers order a stan-dard Mini - they tend to buy more expensive Cooper and convertible versions, making them in effect custom-built and high margin.
Cheeky advertising has helped make the car hip. As Stephen Bayley, the motoring writer, says: "This miniature masterclass in product semantics characterises the whole car: extremely amusing and very, very clever." Comment on the Smart car, by contrast, has been pretty hostile. The Guardian commented: "Only a masochist with unusually low self-esteem is going to want to use a Smart car for a long haul."
So it is entirely possible to make money in small cars - as long as the makers get the design right and make sure they know their customers.
Last year a hagiographic book was published about the story of the Smart car subtitled "The little car that made it big". One section is headlined: "No one asked the buyers if they wanted a car like this." No irony was intended, I suspect - or by the Smart president when he is quoted as saying: "Smart stands for innovation, for function, for emotions - and for joy of life" - and again on the front cover: "This book is a gripping adventure of human struggle and success."
I predict that DaimlerChrysler will come to their senses, and the Smart factory will be shut down within a year, while the cars become eccentric curios, rather like the Robin Reliant or the Sinclair C5.
telegraph.co.uk |
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