Why does Daimler keep Producing the Smart

From 3arf

It looks like a liquorice allsort on wheels, like what might happen if Swatch and Mercedes got together to make a car which is, of course, exactly how theSmartstarted. When the pint-sized car revved up its engines for European market entry in 1997, it turned heads, both in the street and in the press gallery. Eleven years later, the Smart has become an iconic brand,instantly identifiable and fun to drive.

True-black Mercedes drivers may find it hard to take the Smart seriously as a car, but even the most mechanically-minded motor magazine has to take it seriously as a brand. Yet, while the Smart has always been a steady seller, it spent the decade since its 1997 release in the red. Daimler doesn't hang on sentimentally to brands, as its quick divestiture of Chrysler's marques shows. But Daimler is dedicated to the Smart: it introduced the car to the United States in January of this year, and will be taking it to Brazil and Chinanext year, bringing the number of countries with Smart dealerships to 38.

So why has Daimler gone the distance with Smart despite a decade of losses? Clearly, the company believes in the market for two-person cars (it cancelled production of a four-person car when sales proved disappointing). But the decision to persist and persist, and persist is difficult to explain on purely business grounds. With some understatement, Daimler CEO Dieter Zetsche has admitted that the car wasahead of its time. Was it a responsible use of shareholders' money for Daimler to continue to invest in the Smartduring ten consecutive years in the red? It's difficult to see how. The Smart may have made it into the black in 2007, its eleventh year in production, but it will have to do more than just bring home the bacon if it's to pay back a decade of investment.

Even 2007's numbers aren't encouraging: Daimler sold103,000 unitsyear- not a negligible amount, but it sold two and three-quarters times as many units from its A and B small-car series. Unless world numbers trend sharply upwards, it seems unlikely that the Smart will ever repay its launch costs. Any marketer will tell you that a brand is a promise, that it tantalises consumers with the prospect of obtaining benefits they hanker after. But, looking at the Smart's balance sheets for the years 1997-2006, you can't help feeling that those in love with the brand weren't primarily the consumers at all, but those who made the product. Tantalised by the thought of profits, they hung on unreasonably long to their own iconic brand.

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