Mercedes-Benz to take over Smart distribution from Penske; plans for four-door scrapped

Mercedes-Benz has agreed to take over Smart car distribution in the United States from Penske Automotive Group, the companies said Monday. Penske launched the European microcar brand, which is owned by Mercedes' parent, Daimler AG, as an independent distributor in 2008. But after a fast start, U.S. sales of the tiny, French-built ForTwo have plummeted.

Distribution rights and management will shift to Mercedes-Benz USA. Negotiations over details, including when the hand-over takes effect, should be completed by July, said Mercedes-Benz USA CEO Ernst Lieb.

The 21 Smart dealerships that do not have Mercedes products will lose the franchise, leaving Smart with 58 U.S. dealers. Four of the 21 dealerships that will lose the Smart franchise belong to publicly traded Penske Automotive.

In addition, a four-door car being developed by Nissan for Smart USA has been canceled.

Smart USA President Jill Lajdziak will remain with Penske Automotive, the nation's second-largest auto retailer. Mercedes-Benz will run Smart as a division, similar to its Sprinter commercial vehicle unit, and will appoint a general manager, Lieb said.

Fuel economy a key

Lieb said an agreement was signed Friday, but financial details have not been hammered out. Mercedes initiated the discussions with Penske in early January at the Detroit auto show, he said.

Penske got off to a roaring start with Smart, selling 24,622 cars in 2008, as gasoline prices reached record highs. But sales have tumbled in the past two years--falling 59 percent in 2010 to 5,927. But both parties said Smart's shrinking sales are not prompting the hand-over.

Lieb said Mercedes-Benz wants Smart back for two main reasons:

1. It needs the small-car volume to meet new corporate average fuel economy standards that take effect in the United States in the 2016 model year.

2. Daimler AG integrated Smart into the Mercedes-Benz car unit September. The United States is the only market where Smart and Mercedes operate separately.

“It has become clear over the last few months that Smart is an integral part of our achieving the fuel economy targets of 2016,” Lieb said.

Penske Automotive will handle termination of the 17 non-Mercedes-Benz dealers as part of the deal.

Penske Automotive CEO Roger Penske said the closings will include the buyback of signs, equipment and cars--in accordance with the franchise agreement.

Mercedes-Benz could give Smart franchises to other Mercedes-Benz dealers, but Lieb said they would not be required to build stand-alone facilities.

“In most cases a shop-in-shop has proven to be the most economical,” he said. “If you are selling one or two cars, you need consistency in personnel and expenses. It will not work if you have a stand-alone facility.”

Lieb said 300 of Mercedes-Benz' 353 U.S. dealers have upgraded their showrooms to the Autohaus corporate facility program.

“This will be a lot easier than it would have been three years ago,” he said. “The facilities are completely different.”

Project Quattro canceled

Smart dealers in the United States sell the ForTwo and an electric version of the microcar. The brand isn't scheduled to receive a new vehicle for two or three years. That will be a four-door being developed with Renault/Nissan as part of an alliance with Mercedes-Benz.

A separate Nissan-based four-door that has been under development for Smart USA won't happen. That car was due to be launched in late 2011 or early 2012.

“We will stop the project,” Lieb said. “If Smart continued as a free-standing network, they would need a second model to make it viable. By integrating it into Mercedes-Benz, there is no need.”

The Mexican-built car, which had been dubbed Project Quattro, could be canceled at any time according to the agreement with Nissan.

Roger Penske said Mercedes-Benz has the marketing muscle that Smart needs.

“We have launched a brand we can hand off to MB-USA,” he said. “We couldn't give it the muscle that it needed from a marketing standpoint based on the volume.

“This is not a shutdown,” Penske added. “This is nothing compared to a Hummer or a Mercury, this is changing distributorship from a private distributor.”

Lieb said Mercedes-Benz views the buyback as “an opportunity with 353 dealers to drive Smart in a different direction.”

He said Mercedes will interview Smart's 20-plus employees to fill field and technical posts.

Michael Cantanucci, owner of New Country Motor Cars Inc., which has two Mercedes stores in Florida and one in Connecticut, said combining Smart and Mercedes makes sense because of the CAFE requirements.

He said: “The penalties going forward are just too expensive and this is a logical way for us to meet the objective.”

By Diana T. Kurylko- Automotive News