SOURCE: CNN MoneyUnited Auto Group Received 12,600 Deposits For Smart Cars
May 09, 2007: 03:20 PM EST
DETROIT -(Dow Jones)- United Auto Group Inc. (UAG), the nation's second largest auto retailer, said Wednesday that in just over five weeks it has received $99 deposits from 12,600 people eager to be among the first buyers of DaimlerChrysler AG's (DCX) two-seat Smart "fortwo" mini car when it hits U.S. showrooms in 2008.
United Auto Group, which owns the Smart USA division of DaimlerChrysler's Smart unit, kicked off a program in March that offers people the opportunity to be a Smart "insider" and get on a waiting list in return for a refundable $99 deposit. United Auto Group Vice President Tony Pordon said the company has seen considerable interest in the product due to a growing demand for fuel-efficient cars and a continued interest in unique cars.
"With fuel prices escalating and this car promising 40 miles per gallon, they're looking at it as an economical way to be able to adapt to changes in the marketplace," Pordon said in a telephone interview. Smart vehicles are slated to have a base price below $12,000.
United Auto Group, in cooperation with DaimlerChrysler, is doing what many " gray market" distributors have been attempting to do for years in sparking American interest in Smart cars, which are about the size of golf carts but more technologically advanced than many of the cars already on U.S. roads. While Smart products are dwarfed by most vehicles, they are certified with four-star crash worthiness.
Edmunds.com auto analyst Michelle Krebs noted that DaimlerChrysler was going to put Smart cars on sale earlier in the decade, but that effort stalled due to financial problems DaimlerChrysler had at the Smart division. Now, "with gas prices looking at $4 a gallon this summer, this is perfect timing," said Krebs.
Pordon said the company does not know how many people who have given deposits will follow through and actually buy a Smart two-seater, but he expects the retention rate to be high. The company only plans to sell 16,000 Smarts next year in three configurations - the base "Pure" model, the upgraded "Passion" model and the "Passion" cabriolet.
While consumers are given a shot at getting in line for what might be a hot product, United Auto Group sees the $99 deposit scheme as an ideal way to do consumer research. Essentially, the company is getting a fairly accurate snapshot of what kind of models its buyer-base is interested in, so it can order pools of cars from DaimlerChrysler that they can actually sell in North America. Pordon said the most popular Smart model has proven to be the Passion edition.
Growing Interest In Mini Cars In U.S.
Pordon said that the company could conceivably sell out of the first year's expected volume before the vehicle goes on sale. United Auto Group, which primarily sells luxury models and import brands in the U.S., in addition to operations in Europe, is kicking off a 50-city road show this month in order to drum up more demand.
United Auto Group is currently weeding out 50 to 60 dealers from an initial field of more than 1,000 interested dealers that will be selected as exclusive outlets for the vehicles starting in 2008. Pordon said the company has seen considerable consumer interest in California, New York, Washington D.C. and even in Michigan, where the Big Three Detroit auto makers currently dominate the market.
The initial popularity of Smart comes at a time when mini cars are not even on sale in the U.S. The so-called sub-compact, or B-segment, currently represents the smallest vehicle class in the U.S. and most major manufacturers have a product in the sub-compact class or plans to enter it by decade's end. BMW AG ( BMW.XE) sells a line of Mini Cooper vehicles in the U.S., but those vehicles are much larger than DaimlerChrysler's Smart cars.
Mini cars have taken off in other established markets, including Western Europe, as high energy prices have driven popularity of smaller models. Domestic U.S. auto makers have long stayed away from investing too heavily in manufacturing smaller cars because they offer little or no profit potential and Americans continue to prefer larger cars.
General Motors Corp. (GM), however, is eyeing the embryonic U.S. mini car segment as a potential frontier worthy of exploration. At the New York auto show, GM showed off three mini cars built and designed by the company's Korean unit and offered show-goers the opportunity to vote on which vehicle they liked best.
GM spokesman Mike Albano said the auto maker received 885,000 votes since opening a voting Web site April 4. GM does not know how many repeat visitors voted, but he said the feedback received from the New York Auto Show was "pretty encouraging."
"We still have some work to do to get a better understanding on whether there is a market for this size of vehicle," Albano added.