Mercedes-Benz's tiny car brand bets on China after failing in US

The Smart car failed in the US, now it is betting on China
The Smart car failed in the US, now it is betting on China

Mercedes-Benz's struggling city car brand is betting a move to China will keep it alive.

The Smart car brand co-founded by the German automaker and Swiss watch company Swatch in the mid-1990s has struggled in recent years, beset by high labor costs, the notoriously low margins on small economy cars, and markets that have increasingly favored sport utility vehicles and crossovers over compact cars.

When it was first brought to the U.S. in 2008 by dealership mogul Roger Penske, the smart car promised tiny, fuel-efficient transportation for young urban Americans. It came at a time when fuel prices were going toward record highs, and the country was heading toward recession.

But the vehicle also asked a lot of buyers. It was tiny: the only model sold in the U.S. had just two seats and very little trunk space. It got good gas mileage, but did not offer enough of an advantage over conventional compact cars to justify sacrificing the space and convenience of a conventional four-seat vehicle.

U.S. sales in the car's first year were just under 25,000 units, but fell from there, bottoming out at a mere 1,276 in 2018. Sales in Europe were far higher at around 97,000 in 2018, but still not enough to make money for Smart parent Daimler, which some analysts estimate is losing around $500 million a year on the brand.

In 2019, Daimler partnered with Chinese automaker Geely to produce electric Smart cars at a factory in China. The move is expected to slash Smart's labor costs — the cars are currently built at a factory in Hambach, France, where labor is relatively expensive compared with China.

It will also give Daimler a chance to sell the Smart cars in China, the world's largest car market. The Chinese government is also keen to promote electric vehicles to reduce severe pollution problems. Daimler can also leverage Smart's association with Mercedes-Benz, which is popular among Chinese buyers hungry for European luxury names.