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How Daimler Smart could have made billions (1)

Jun 25, 2015

Instead of hemorrhaging billions. In my previous blog I mentioned the need for an automotive equivalent of Apple's reinvention of the (mobile) phone, since driverless and car-sharing make it possible to steer away from the been-there-done-that four-wheeled car. In my opinion it already could have been, should have been picked up by brands that focus on city vehicles, like Smart Car.

There is more to personal transportation than making cars 
Are running a car company & car brand and catering to people's personal transportation needs and preferences mutually inclusive, or do they merely overlap to a certain degree? The first is for 99% about developing, manufacturing and selling successors to a car company's present models, hoping they'll do better than the competition's. Basically the auto industry's business model. The second takes a fresh new approach to what (literally) 'moves' people, what motivates them, and what chances are out there? Overall, cars still represent the biggest purchase and single expense to most consumers, and there isn't a product that has so much impact - on our living environment, our health, and matters such as energy policy, urban planning and infrastructure. What 'from the inside' looks like a fiercely fought market as car manufacturers overall have the same MO, outsiders may actually perceive as one big tasty global pie they can sank their teeth in.

In a short period of time we have seen electric and hybrid propulsion hit it off, new manufacturing methods and new materials make their debut, fuel efficiency and emissions standards become more demanding, connectivity technology open up new possibilities, consumer preferences changing mainly under the influence of new media. Rapidly growing urbanization influences the way we move; it requires and challenges us to do more with less space. Small vehicles make more sense than automakers give them credit. What if the car would be more cost- and time-efficient, less cumbersome, less self-serving, using less precious resources to begin with? Another major consideration is government regulations. The EU, for instance, ordered a further reduction of carbon dioxide emissions to 95 grams per km by 2020 (135.7 grams in 2011). To lower their CAFE and corporate emissions profile car manufacturers are forced to incorporate more energy-efficient, cleaner cars in their line-up. Smaller cars require less energy to propel themselves; a smaller and lighter battery pack suffices to score a decent range.

Small cars can be great where other cars are just big 
Daimler evidently thinks so too. That's to say, I can't think of another reason why it's still prepared to hold on to its Smart division. Smart however is also a classic case how an automaker got stuck on 'the road once taken'. A small car means less material required to build one, therefore less weight and more energy efficiency, right? Not so with the Smart car. Mainly because of the misconception that a city car basically is a compact with large sections chopped off at the front and rear, a boxy, high-drag model emanated from the drawing board with poor ride comfort, unspectacular fuel efficiency and questionable rear-impact safety. One only has to envisage those narrow streets and alleys in cities like Milan, Rome, Paris, Beijing and Tokyo to realize that length is not the real issue, width is. Remarkably enough, both new Smart cars grew substantially wider!

Over the years of its existence, Daimler shareholders repeatedly expressed their concern with regard to Smart hemorrhaging the rich profits that were made in the luxury car division. As a matter of fact, two years ago a report by London-based research bureau Bernstein deemed Smart as the biggest European automotive money drain of all time. Daimler has lost $4.6 billion over the course of its existence – approximately $6,100 for each Smart sold by the end of 2013. Undoubtedly the money meter will have passed the 5 billion mark by now, particularly since a billion has reportedly been invested in Smart's third edition of the ForTwo and the second edition of the ForFour.

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