U.S. sales of Smart cars hit a wall

nhtsa_smart_car_crash.top.jpg By Doron Levin, contributor


FORTUNE -- Don't feel too sorry for automotive mogul Roger Penske, who this week threw in the towel on the exclusive U.S. distribution rights for the Smart line of small cars. Investors were cheering his decision Wednesday, along with the financial results of Penske Automotive Group (PAG, Fortune 500), bidding shares nearly to a three-year high.

The Smart ForTwo, a diminutive two-seater built by Daimler AG, simply never met sales expectations, reaching about 45,000 cars sold over a three-year period, but at a declining rate. "It had a rip-roaring start," said Tony Pordon, senior vice president for the Bloomfield Hills, Michigan company. "The last two years have been difficult."

Penske, chairman and chief executive officer, bought the U.S. rights to sell Smart cars on behalf of his company in 2008 on the belief that gasoline prices would rise sharply higher and the economy would remain buoyant. Neither of those things happened.

Instead, gasoline prices stagnated, the economy tanked and, complicating matters, the U.S. vehicle market has seen the proliferation of small-car competitors, such as the Honda Fit, Nissan Versa, Ford Fiesta, Toyota Yaris and Chevrolet Aveo.

Smart, which starts at just under $13,000 in price, offered a battery-powered version, which had a range of 60 to 65 miles on a charge.

Smart -- in this writer's opinion and based on a few test drives -- is an estimable model, fun to drive and easy to handle. For city dwellers the car can squeeze into the tightest parking spaces; and obviously it is fuel efficient (combined 36 miles-per-gallon). Safety tests suggested it is no less safe than any other small car. But -- and this reservation is key -- it simply doesn't look big enough to belong on the American road.

Or, to paraphrase Ronald Reagan the actor in one of his B-movie roles: What happened to the rest of the car? Smart looks as though its rear had been lopped off with a giant ax. American drivers are willing to sacrifice size for economy -- they're not willing to look ridiculous.

Penske, which operates retail dealerships of most brands in the U.S. and in the United Kingdom, had planned to add a second Smart model, a larger hatchback, built by Nissan. That deal was canceled along with the automotive company's decision to hand Smart back to Daimler. Daimler said it will continue to sell Smart at Mercedes-Benz dealerships.

For all of 2010, Penske earned $108.3 million, a 41 percent increase from 2009, on revenue of $10.7 billion. Its Smart USA unit lost about $16 million for the year. The results beat analysts' expectations and prompted a rally in the shares of other auto retailers. After dipping below $6 a share in early 2009, Penske's stock has been marching steadily upward, hitting $21 a share at the close of trading on Wednesday.

Roger Penske, in an interview with Reuters, said he would be "opportunistic" about buying additional dealerships this year and was negotiating with two Detroit automakers, whom he declined to identify, on deals to buy U.S.-brand franchises. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Find Your Next Car
Company Price Change % Change
Facebook Inc 60.87 -0.49 -0.80%
Bank of America Corp... 16.34 -0.03 -0.18%
Microsoft Corp 39.86 0.17 0.43%
Verizon Communicatio... 46.28 -1.15 -2.42%
Micron Technology In... 26.16 -0.09 -0.34%
Data as of 4:01pm ET
Index Last Change % Change
Dow 16,501.65 0.00 0.00%
Nasdaq 4,148.34 0.00 0.00%
S&P 500 1,878.61 0.00 0.00%
Treasuries 2.69 0.00 0.00%
Data as of 11:54pm ET
Sponsors

Sections

Officials recommend that states allow Tesla to sell cars directly to consumers and argue that banning those sales stifles competition. More

Hundreds of postal workers nationwide protested outside Staples' stores on Thursday. More

Federal regulators are poised to lay down new rules of the road for how Americans access the Internet. More

Schwinn, Trek and Cannondale are all iconic American bicycle brands. But none of them are made in the United States. More

Do you feel like you are overworked? Here are how other people deal with the stress and politics in their jobs. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.