Smart Car

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  • Topic: Daimler AG, Smart, Smart Fortwo
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  • Published : March 26, 2013
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Case 10-2)
1

The Smart Car
In 1991, Nicolas Hayek, chairman of Swatch, announced an
agreement with Volkswagen to develop a battery-powered
"Swatch car." At the time, Hayek said his goal was to build
"an ecologically inoffensive, highquality city car for two people" that would sell for about $6,400. The Swatchmobile concept was based on Hayek's conviction that consumers become emotionally attached to cars just as they do to watches. Like the Swatch, the Swatchmobile (officially named "Smart") was

designed to be affordable, durable, and stylish. Early on,
Hayek noted that safety would be another key selling point,
declaring, "This car will have the crash security of a
Mercedes." Composite exterior panels mounted on a cage
like body frame would allow owners to change colors by
switching panels. Further, Hayek envisioned a car that emitted almost no pollutants, thanks to its electric engine. The car would also be capable of gasolinepowered operation, using
a highly efficient, miniaturized engine capable of achieving speeds of 80 miles per hour. Hayek predicted that worldwide
sales would reach one million units, with the United States
accounting for about half the market.

Some observers attributed the hoopla surrounding the
Swatchmobile concept to Hayek's charismatic personality. His automotive vision was dismissed as being overly optimistic; less ambitious attempts at extending the Swatch brand name to new categories, including a brightly colored unisex clothing line, had flopped. Other products such as Swatch telephones, pagers,

and sunglasses also met with lukewarm consumer acceptance.
The Swatchmobile represented Hayek's attempt to pioneer a
completely new market segment. Industry observers warned,
moreover, that the Swatch name could be hurt i f the Smart car were plagued by recall or safety problems.
In 1993, the alliance with Volkswagen was dissolved;
Hayek claimed it was because of disagreement on the concept
of the car (Volkswagen officials said low profit projections were the problem). In the spring of 1994, Hayek announced that he had lined up a new joint venture partner. The Mercedes-Benz
unit of Daimler-Benz A G would invest 7 5 0 million Deutsche marks in a new factory in Hambach-Saargemuend, France.
In November 1998, after several months of production delays
and repeated cost overruns, Hayek sold Swatch's remaining
19 percent stake in the venture, officially known as Micro
Compact Car GmBH [MCC), to Mercedes. A spokesman indicated that Mercedes' refusal to pursue the hybrid gasoline/battery engine was the reason Swatch withdrew from the project. The decision by Mercedes executives to take full control

of the venture was consistent with its strategy for leveraging its engineering skills and broadening the company's appeal
beyond the luxury segment of the automobile market. As
Mercedes chairman Helmut Werner said, "With the new car,
Mercedes wants to combine ecology, emotion, and intellect."
Approximately 8 0 percent of the Smart's parts are components and modules engineered by and sourced from outside suppliers and subcontractors known as "system partners." The decision to locate the assembly plant in France disappointed German labor unions, but Mercedes executives expected to

save 500 marks per car. The reason: French workers are on
the i ob 2 75 days per year, while German workers average
only 242 days; also, overall labor costs are 40 percent lower in France than in Germany.
MCC claims that at Smart Ville, as the factory is known,
only 7.5 hours are required to complete a vehicle. This is
25 percent less time than required by the world's best automakers. The first 3 hours of the process are performed by systems

partners. A Canadian company, Magna International, starts by welding the structural components, which are then painted by Eisenmann, a German company. Both operations are performed outside the central assembly hall; the body is then passed by conveyer...
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