Smart Car is Smarter Than it Looks, At Least for Distributor Roger Penske

Last Updated May 3, 2010 6:30 AM EDT

Based strictly on the latest auto sales numbers, it's hard to call 2-year-old Smart USA anything but a failure so far for its manufacturer, Daimler (DAI). Believe it or not, it's been a neat little success for its U.S. distributor, Penske Automotive Group (PAG) Chairman Roger Penske.

"I'm not in any way, shape or form backing off on Smart," Penske said in a conference call today to announce first-quarter earnings for Penske Automotive. "If you look at the ROI (return on investment) it was high."

That's startling, considering U.S. sales for the tiny Smart car have fallen 72 percent to just under 1,400 so far this year. In 2009, sales fell 41 percent to 14,595, down from just under 25,000 in 2008, the first year for Smart in the U.S. market.

If you looked up "flash in the pan" in the dictionary, you could expect to find a picture of Smart's cute fortwo model (photo, Cabrio convertible version). Penske said he'd like to sell just 10,000 Smart cars this year in the United States.

Yet Penske also said today he's already made his money back on Smart, and he said most of the early takers among its 70 or so U.S. dealers have, too.

That's because Penske got Daimler, which also makes Mercedes-Benz and Maybach, to make most of the investment to introduce Smart to the United States in 2008. It takes many millions of dollars to get a car ready to pass U.S. safety and emissions standards, especially if it wasn't designed from the ground up for sale in the United States.

If it was easy and cheap to do that, we'd already be overrun with Fiats, Citroens, cheap Chinese imports and probably even cheaper knockoffs of Chinese imports.

Through Smart USA, Daimler and Penske revived an old form of doing automotive business in the United States, the independent distributorship.

As an independent distributor, Penske set up the Smart distribution network in the United States and appointed the dealers. A lot of importers set up independent distributors in the U.S. market in the 1950s and 1960s, because car companies in Japan and Europe were smaller and poorer than they are now; unfamiliar with the U.S. market; and willing to pay a middleman to get a ready-made U.S. distribution network.

Importers spent most of the 1980s and early 1990s buying out their independent distributors, because as the import brands got to be more prosperous they wanted to exert more control, and to capture the extra margin that was going to the middlemen.

Independent distributors were a lose-lose proposition for the factories. The unsuccessful ones didn't represent the brand well in the United States, and the successful ones couldn't be bought out. The few remaining U.S. distributorships remaining from those old days, like Southeast Toyota and Subaru of New England, are said to be goldmines.

Smart USA is probably no goldmine, but Penske has the factory over a barrel. If they pour additional investment in the brand, Penske benefits from higher sales. If Daimler ever decides to pull the plug, Penske still benefits because Daimler will have to buy him out.

Looks like more of a "smart" investment than it appears.

Photo: Smart USA