Smart no more: Why the end of the Fortwo has been a long time coming

Daimler’s Smart brand has announced that it’s pulled the plug on the U.S. sales of its only model, the Fortwo, which went all-electric just one model year ago.

The decision, according to Mercedes-Benz USA, holds for both U.S. and Canadian markets and has to do, the company says, with “high homologation costs for a low volume model.” It also doesn’t affect the arrival of the Mercedes-Benz EQC in 2020, or the availability of service and replacement parts at dealerships; and the Smart brand will continue in Europe, China, and other parts of the world.

Smart went fully electric for the 2018 model year. The Smart EQ Fortwo remains on sale for a few more months and starts at $24,950.

With this move—and the mention of the EQC in the company’s statement—the Fortwo is looking more like a placeholder that earned California ZEV credits ahead of the arrival of that more American-sized electric luxury crossover.

At a retail level, the Smart brand had slowed to the sales numbers of an exotic car. According to Automotive News, Mercedes sold just 1,276 Smart EQ Fortwo models in 2018.

car2go - Portland, OR

Car2Go had purchased its vehicles separately from the parent company—including some gasoline models after the brand went all-electric at the retail level—although it has been transitioning away from using Smart vehicles in favor of Mercedes-Benz models.

The Smart Fortwo was originally launched in Europe in 1998, and started out as the Swatch Mercedes Art Car, with its design going back to 1993. It wasn’t offered in the U.S. until 2008, and while it landed in a buzz of initial popularity and sales, it’s faltered ever since.

It didn’t have to be that way. Here are five key decisions that could have taken Smart on a different trajectory in the U.S.

Leaving us in the lurch. The previous single-clutch automated gearbox—the way most Americans first experienced the Fortwo, via Car2Go—was also something that you never got completely used to. The dual-clutch unit that replaced it in this newest generation was great. Smart had told us that the decision to go with the more expensive gearbox (versus a CVT, for instance) had been informed by American tastes, in part. Ironically, very few of these very fully sorted Fortwos made it to the U.S. before the company decided to go all-electric in the U.S. in 2017. Even Car2Go has been in the process of phasing all Smart vehicles out in the U.S.

2008 Smart Fortwo

Going halfway in with Penske. The second-generation Fortwo, which arrived for 2007, was intended for U.S. sales, but the Mercedes-Benz dealers in the U.S. weren’t all that eager then to sell it. Meanwhile Roger Penske saw a business opportunity in the Fortwo with the predictions that gas prices would spike and the economy would stay strong. The Penske operation, Smart USA, sold nearly 25,000 Fortwos in 2008 alone, but that proved to be an aberration—along with the economic predictions. Penske threw in the towel and the parent company retook control over U.S. sales in 2011. For many years since then the Fortwo sold at about 10,000 a year, but that rate has slowed even more over the past several years.

2017 Smart ForFour Brabus

Not bringing the ForFour. The worst business decision Smart ever made could well have been opting to bring the Fortwo to the U.S. for another generation instead of the four-door ForFour. With some wheel-well cladding and rubberized trim, it’s a unique alternative at the fringe of one of the hottest segments in the market—and a vehicle with a lot more flexibility than the Fortwo, even if its back seat isn’t all that adult-usable.

2019 Smart Fortwo

Going small on electric range. Yes, even the tiny Smart couldn’t go too short on range—and at least for American tastes, it does. The Fortwo is rated at just 58 miles, according to the EPA (or 57 miles for the Cabriolet); and if you factor in the 25-percent range drop we’ve seen in some electric vehicles in winter weather—or some stints of freeway driving—Americans with an average daily round-trip commute distance of 32 miles don’t have a lot of wiggle room left.

A big thirst for something so small. The gasoline version has had underwhelming mpg ratings all along. When the second-generation Fortwo arrived in the U.S. for 2016 (or the third one globally), it was rated just 34 mpg city—or 32 mpg city with the five-speed manual—and Smart said that it required 91-octane gas for peak performance.

Car2Go Smart Fortwo, in Portland

Not breaking the “economy car” stigma. The Fortwo came in some very aesthetically appealing combinations, but in recent years the first and only way many Americans encountered Smart was as part of the Car2Go car-sharing fleet; and the parent company equipped that car-sharing fleet in a least-common-denominator way—including in many cases big steel wheels and drab interiors. It was certainly no way to sell Americans on the individualism that the Smart team had worked hard to establish.

Smart Car In San Francisco

Smart tipping. Widespread reports of “tipping” parked Smart cars over in the street in San Francisco, Seattle, and Denver, among other places, served only to underscore the vulnerability of this minicar and that it was the lightest passenger vehicle on the market. Smart could have turned this widespread coverage directly into a clever marketing campaign—the same dinner-conversation laugh, but a positive one.

Safe and small. As much as the Smart ended up falling to some American preconceptions, it broke the small-car paradigm in one important way: It was safe. In a video released by the company, the Fortwo crashed, in a frontal-offset impact, passenger cell intact, into a Mercedes-Benz S-Class—a vehicle that doesn’t seem so massive in the U.S. Next to Cadillac Escalades and Lincoln Navigators, it may have only served to underscore, again, just how tiny the Fortwo was.

Why did Smart car fail in the United States?

Smart car was first made by a collaboration between a German automaker and a Swiss watch company. It was created with the idea that it will revolutionize the urban mobility. But, its been more than 20 years after its conception, the Smart car is still struggling to sell.

Smart EQ ForTwo 2019

The parent company of Smart, a German automaker Diamler doesn’t disclose financials related to Smart, but it has been estimated by the analysts that the brand is causing huge loses in the range of hundreds of millions of dollars every year.

Now Smart is looking to catch on the EV hype in China. Its preparing to release an electrified version in partnership with Chinese automaker Geely. They’re hoping that Chinese labor will cut manufacturing cost and also give it exposure to the largest auto market in the world. This might be the best chance Smart brand can get to live up to its potential.

History & Origin of Smart

Two odd companies Swatch and Mercedes Benz collaborated to make Smart cars. The founder of Swatch, Nicolas Hayek got the idea for a very small and affordable car that is highly efficient. The idea in his words is that the car is “big enough to hold two people and a case of beer.”

Smart car was targeted towards young urban consumers, therefore it had features suggesting of colorful Swatch watches. Also, the car was meant to have swappable panels, so owners could customize its look. Hayek first tried to partner with Volkswagen, but the deal couldn’t mature, he later went to Mercedes Benz who were already working on small car concepts since the 1970s.

Smart ForTwo 1999

The Smart car made its first appearance at the Frankfurt Auto Show and its production began in 1998. In the same year they were selling these cars to at least 8 countries in the Europe. The car was a success in Europe. The 2008 economic recession played a big role in popularity of Smart cars. Rising fuel prices and dwindling residual income meant that people were looking for affordable cars with great fuel efficiency that are cheaper to maintain.

Smart in United States

The success in Europe caught the attention of Roger Penske. Roger Searle Penske is an American businessman and entrepreneur involved in professional auto racing and formerly a professional auto racing driver himself. He opened a Smart dealership and started importing Smart cars into the United States. He assumed that at least some Americans would want to buy a fuel efficient, small urban car.

Smart ForTwo at LA Auto Show 2012

The Smart car was unveiled in the U.S. in 2008 right before the fuel prices skyrocketed and the economy started deteriorating. So, the launch of Smart seemed very timely and relevant to people’s needs who were suffering from a recession. Roger Penske was the sole distributor for Smart cars until 2011 when he relinquished the operations to Daimler AG.

Decline in sales after recovery from recession

Smart sales chart in US – 2008 to 2018

In 2008, 24,622 Smart cars were sold in the U.S. That came down to 14,595 in 2009 and 5,927 in 2010. The rapid fall in sales had to do with economic recovery in America and dwindling gas prices. As is the trend in US, people again stormed to buy SUVs, but now there is also a new trend to catch on, cross-over sports utility vehicles. Consumers actually showed more interest in crossovers than full size and mid size SUVs. It is speculated that the main attraction towards crossover is bigger size but similar fuel economy as compared to sedans. The comfort, higher ride, interior space and lower price than large SUVs also played a big role in catching customer attention. Crossovers are just more practical than sedans and other small cars. Therefore sale of all small cars struggled, but Smart was the worst hit because of its tiny design and little cargo space in the trunk.

The small size of Smart made it easily maneuverable and easy to park, but there were a lot of sacrifices consumers had to make. People preferred four door subcompact cars that were similar in price and fuel economy. Also, out of congested urban areas, Smart is incompatible to the rest of the country. The price of Smart is same as subcompact car, and it costs same to run as subcompact car, then why not get a subcompact car instead and get a lot more luggage space and two extra passenger seats.

There was another aspect which a lot of consumers were concerned about, that is its safety. Despite many promises from the company and four star Euro NCAP rating, people still felt unsafe sitting in a tiny car. There were some other problems as well. It was too under-powered and it had a very bad transmission. The list of sacrifices is huge from an American view with little gain.

Smart’s End in US

Earlier this year in 2019, Smart announced that they are pulling its product from the US market after disappointing sales for many years. There were only 1,276 sales in 2018, down 95% from its peak sales of 24,622 units in 2008. Mercedes-Benz said that they discontinued Smart in U.S. for a number of reasons, primary the declining demand for micro cars in US and Canada.

Smart in Europe

On the other side of the ocean, they have sold far greater number of Smart cars in Europe, but its still not enough to make it profitable for Daimler.

Smart car sales in Europe – 1997 to 2018

The margins are too thin and labor cost is high. They sold 97,346 united in 2018, but despite strong number of sales it is estimated that Daimler is losing $500 million every year. Automotive market is very competitive these days and its very difficult for companies to be profitable. Anything that has razor thin margin is in tough luck. Analysts say that the main problem is high manufacturing cost because of expensive labor. All Smart cars are manufactured in Smartville, Hambach, France.

Smart ForTwo at 2018 Paris Auto Show

The reason why it sells more in EU has more to do with regulation and its tight urban sprawl. EU has very tight CO2 emission regulations and Smart has very low emissions, its also very easy to maneuver in tight urban European streets. Saving on gas, and low carbon emissions is a powerful selling point for customers in Europe. Clean mobility is Europe’s priority that’s why its automotive fleet is much different than US.

Smart in China

China has plans, and those plans are regarded as perhaps the world’s most ambitious plans for electrification of automobiles. This year Smart made a partnership with Geely which is China’s largest auto-manufacturer. Volvo, a Swedish car making company is also owned by Geely, and recently they have launched a performance based high-end car named Polestar. Just like the Polestar 2, Smart cars will be a fully electric vehicle and will be made in China.

Polestar 1 Plug-in hybrid by Volvo, a subsidiary of Geely

The main attraction for Diamler in this deal is the much lower Chinese labor cost resulting in cheaper manufacturing cost extending the profit margin. This partnership also gives Diamler a chance to sell its Smart cars in the world’s biggest auto market. More than 28 million new vehicles were sold in 2018 alone, and there are more electric cars in China than all other countries combined.

In a few years, Smart cars will be available in Chinese market, and there are a lot of hopes attached to it. It really is the best opportunity Smart will ever get. Lets see how it turns out.

The Internet of Vehicles: Writing the Future of Smart Cars

While NXP’s leadership is innovating the technology solutions helping to quite literally drive the future of autonomous or “smart” vehicles, we’re also helping write that future, thanks in large part to our very own Patrick Pype, Director of Strategic Partnerships.

FEATURING

Patrick Pype Director European Affairs at NXP

The IoV

Patrick is an outspoken advocate of a concept called “the Internet of Vehicles,” or “IoV,” which suggests a novel and very actionable idea of looking at smart tech not only as augmenting transportation but transforming how and what it accomplishes. The IoV, like the IoT, represents a system that integrates computing, communications, data storage and connectivity to other vehicles and infrastructure. Embracing this new way of thinking suggests significant development priorities and opportunities.

A New Book on the Future of Smart Cars

Patrick is a prolific writer and recently contributed to a chapter in a book that may well become the guide for such future development, entitled Intelligent Technologies for Internet of Vehicles. We had a chance to ask him a few questions about the IoV concept and what it will mean to users, customers and NXP (note: the interview has been edited for length and clarity):

Marcus Borrmann: What is the Internet of Vehicles?

Patrick Pype: The IoV represents a fundamental shift in how we view and use vehicles, from simply a mechanism to move from place to place to an automated device that is integrated not only into our lives but to the other cars, pedestrians and infrastructure around it. A similar shift happened to the telephone, which started out being used for talking but is now a tool integrated into computational processing behind finance, commerce, education and entertainment. Vehicles, like phones, are going through such a transformation. While possessing a car or truck with a big engine or the latest design touches used to be sources of owner pride, we’ll see that connectedness and intelligence values added to those criteria.”

MB: Why is a Book About the IoV Important Right Now?

PP: The evolution of intelligent vehicular technologies has gotten so much publicity in recent years and people have come up with different expectations for the pace and benefits of that development, so it’s important for engineers and research scientists to have an objective, thoroughly researched state of the art today and map for future evolution.

For instance, the role of electronics controllers in vehicles is evolving from distributed domains to interconnected computing and server platforms, which has consequences for how you build the architecture. It's something NXP works on every day with its customers, but it’s important to share the standards and practices for this work, since we need every component of the overall system—vehicles and infrastructure to work together.

MB: What Will Be Most Surprising to Readers?

PP: The complexity of how the electronics architecture of a car will look even a few years from now, which will require fast innovation and iteration of components and how they work together. Cameras, radar, LIDAR and other sensors will work together in far faster and more robust ways than they do today in order to get a far better perception of the world around the car.

MB: How Has Your Thinking Evolved Over the Years?

PP: I’m always struck by the importance of trust; no matter what the technology benefit, even starting with adaptive cruise control, users need to be comfortable relying on the role of the tech to keep them safe.

This fact is another reason for the book, as well as for my writing and that of others, since user expectations have a direct impact on what they’re willing to try. Some of the publicity on autonomous driving, especially in the U.S., may have led some people to believe that self-driving cars were just around the corner, which raised their expectations not only for availability but reliability.

The truth is that smart vehicle technology will keep evolving and widespread user availability will be decided by the same sort of rules that dictated any other vehicular technology. There’s a phrase that things need to be “road ready” before people are going to entrust their lives to a technology or tool, and the IoV will be no exception.

MB: What’s the Role of Partnerships?

PP: Partnerships are much more important now than in the past because OEMs want visibility into the underlying technologies on which their products can be based and built. For companies like NXP, we’re no longer selling semiconductors as much as we’re collaborating with customers on envisioning the optimal system architectures for their products and hence need to work together with key stakeholders in the value chain.

NXP’s Public Cooperative Programs (PCP) division coordinates publicly funded innovation and R&D collaborations with academic, government, nonprofit and corporate partners. NXP’s PCP team handles all operational, financial and legal matters, allowing technical engineers to focus on the research and development.

MB: What’s Your Prediction for the Next Five Years?

PP: The role of data to and within a vehicle will change from “big” to “relevant,” as systems process more and more varied data, it is important to use only the relevant data instead of all data. This is of crucial importance both for privacy as well as for power reduction.

I think we’ll also see the IoV concept useful in other industries, such as factory robots and drones. The innovations driving vehicular development, like better perception and environmental awareness, will have many spin-offs in other areas of our lives.

I like to say that the IoV is the space program of our times. It will inevitably touch everything. Patrick Pype

You can learn more about Intelligent Technologies for Internet of Vehicles here.

More information about ADAS and Highly Automated Driving, please click here.