Smart Needs Help from Cash for Clunkers

(MoneyWatch)  The Smart brand got off to a good start in the United States in 2008, but with gas prices down from their peak a year ago, today Smart desperately needs a shot in the arm.

That puts Smart at the head of the list of brands hoping that "Cash for Clunkers" gets a new lease on life.

Smart is currently promoting a $99 monthly payment, based on the assumption that customers will get a maximum government incentive of $4,500 from the officially named Car Allowance Rebate System and apply it to a Smart fortwo.

Besides the Cash for Clunkers rebate, the $99 payment is followed by another very large asterisk, which is that the $99 payment is for a balloon note, a rare form of payment that few people use.

The fine print explains that at the end of 36 months, the customer owes $6,667. That's 50 percent of the original suggested retail price of $13,335, for a 3-year-old car -- even after making what amounts to a hefty $4,500 down payment, in the form of the Clunker rebate.

On the face of it, that doesn't sound very smart, pardon the expression. That's because if you sell it at that point, very few cars retain that much value after three years. That's been my complaint about Smart all along, that it's too expensive for what it is. Still, some people could be attracted by the idea of a $99 monthly payment, and maybe it will turn out that a 3-year-old Smart will retain better-than-average value.

Smart's U.S. distributor, Penske Automotive Group, last week quietly lowered its U.S. sales forecast for the Smart brand to about 18,000 wholesale units in 2009, from a forecast of about 20,000 at the end of the first quarter.

Smart's U.S. retail sales in 2008 were 24,622, according to AutoData Corp. U.S. sales began for the Smart brand in February 2008, and took off in parallel with gas prices. But Smart has lost momentum as gas prices subsided. In the first half, wholesale volume fell 26 percent to 9,373, Penske Automotive said in an SEC filing on July 31. In the first half, Smart retails fell 25 percent to 8,567, AutoData said.

In June, Smart's U.S. sales fell 56 percent, to only 1,116.