Filed under: Coupes, Chrysler, LLC., Daimler, SMART, Earnings/Financials
How smart is this? DCX lost ?3.9 billion on Smart over four years
DaimlerChrysler stock has soared ever since news hit the street that a Chrysler sale was imminent. After all, Chrysler lost $1.5 billion in the 3rd quarter of 2006, and the Germans were convinced that the Pentastar was the root of all their problems. Now comes word from German newspaper Handelsblatt that DCX dropped a cool €3.9 billion on the Smart brand in only four years, which puts the microcar brand in Jaguar-bad territory. Since DCX doesn't break out profits or losses for Smart, Automotive News reports that Handelsblatt came up with the figure after obtaining the information from liquidated Smart GmbH in Böblingen, Germany. How could such a small, cute little vehicle cause so much financial heartache for the brilliant German luxury automaker? We don't know, but it'll be interesting to see if DCX shareholders react to this news like they did Chrysler's losses. We'd also like to know whether Daimler sought any advice or help from value brand Chrysler on how to produce a vehicle inexpensively, but somehow we doubt it.
[Source: Automotive News (subscription req'd)]
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Reader Comments (Page 1 of 2)
Avinash machado 10:43AM (6/13/2007)
How smart is this?
It is not smart. It is dumb.
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Seminole 10:48AM (6/13/2007)
I saw one of the FourTwo's yesterday in Tallahassee, which surprised me because you never see anything new here. I actually had to slow down to make sure I wasn't going crazy. If you want attention you'll get it. Everyone else on the road was looking at it like, "What the hell is that thing?" It looked extremely small though, since it was in between a Silverado HD and a F-150 crew cab.
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Tyk 10:52AM (6/13/2007)
I see at least a handle full of these everyday, here in Ottawa (CANADA)... they look like good runabouts for the downtown. Its not for me though; you can get a real car for the same money.
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Aprime1 4:12PM (6/13/2007)
Yeah, every time I go to Ottawa I can spot at least 3.
Mr. Oak 10:54AM (6/13/2007)
So, Chrysler wasn't their only problem.
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Colin Smith 11:08AM (6/13/2007)
It cost a fortune to develop because eveything was new from the ground up: engines, gearboxes, components - the lot.
Normally manufacurers carry over engines, gearboxes etc. with minor tweaks. Floorpans too. And the Smart has to be sold cheaply - but not cheap enough for a two seater, when similarly economical small cars can be had for less money with four seats. Yes, it is safe and easy to drive and easy to get into and wacky, but it was never a very cheap car to build or to buy, nor an especially economocal one.
Fiat, Citroen/Peugeot, Daihatsu, Kia, Toyota and others also produce small, economical, safe cars. They all seat four (just) and often cost less money. They all handle better and a few of them are chic too.
The Smart has sold well enough, but as a niche product, never in volume enough to recoup its costs. So it has made a huge loss.
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bmoredlj 11:16AM (6/13/2007)
Two other curious facts, After losing (not loosing) billions of dollars on the first XBOX, Microsoft continues to lose $150 on every XBOX 360 they sell. A Sony PS3 costs more than $800 to manufacture but sells for as little as $500.
I'd guess that these loses are just a price the manufacturers have to pay for the expensive new technology built into their systems.
Likewise it must cost a bundle to make a small, cute little vehicle like the Smart capable and safe on the road, moreso than a larger, naturally safer vehicle.
Like Microsoft and Sony, Smart has smartly chosen not to pass the extra expense to the consumer. Since I'm not a shareholder in DCX, I don't mind.
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Solo Racer 11:41AM (6/13/2007)
"I'd guess that these loses are just a price the manufacturers have to pay for the expensive new technology built into their systems."
Those losses are offset by licensing fees paid by game developers. Much the same way that most printers are sold at loss-leader pricing because they'll get you when you buy ink.
gary 11:33AM (6/13/2007)
Daimler also lost $30 billion on Chrysler after buying it for around $37 Billion in 1998 and selling it for a measly $7.5 Billion in 2007.
"How Smart is That"
http://www.dispatch.co.za/1998/05/08/business/DAIMLER.HTM
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Rick Lyon 11:38AM (6/13/2007)
I'm not surprised. The Smart is cool, nice interior, but way overpriced for what you get. The smaller the car should be smaller the price but they were talking under $20k for the states. It should be under $10k for the states. Big price means less appeal. Wow, isn't that Chrysler's problem if you also added in poor quality?
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Aaron 12:28PM (6/13/2007)
Interesting how DCXs divisions (save the high end car group) all seem to be a burden. Add in daimler's issues with cooking the books and it makes a man wonder.
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Rschoel 1:06PM (6/13/2007)
"The smaller the car should be smaller the price..."
It's precisely that kind of thinking that keeps many of the best small cars out of the North American market. :p
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Gregg 3:36PM (6/13/2007)
Yes. Big or small, lots of the same components must be fitted, and the biggest cost in building any vehicle is labor. Plus, the smart car is not just any econobox. Like the Mini, it is fitted with luxury features, some of which like the automatic climate control, clutchless manual and electronic stability control are not available on many small cars no matter the cost.
Maytag 1:24PM (6/13/2007)
A dealer in a Portland, OR suburb sells Smarts that are "Americanized" by G & K Automotive Conversion in California. Unlike "normal" Smarts, these have a Mercedes logo slapped on the front, possibly to help justify the price...
http://images.ecarlist.com/cgi-bin/viewall.pl?dir=990_4125
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Aprime1 4:14PM (6/13/2007)
Where is he getting them from? I don't remember seeing Smarts with headlights like these.
Frank 2:01PM (6/13/2007)
No surprise about the losses. Mercedes only knows how to make large luxury cars. It is not a coincidence that the most sucessful Chryslers under their watch are large rear drive sedans. It is all they know how to build. BMW had a similair problem with Rover. Luxury car makers are unable to make mainstream cars profitably. The Mini is sucessful because it is a "premium" small car with a premium price.
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Auto IT 2:49PM (6/13/2007)
Don't forget that Smart was not supposed to be a one-model company. In Europe Smart launched a four-door model called the ForFour, plus a low-slung sports coupe/roadster model. There were also plans for a 4x4 called, I think, ForMore. The company also wasted cash on no-hopers like the Smart CrossBlade, which had no roof, no doors and no windshield.
All were expensive to develop and sold at the low end of poorly. Everything but the ForTwo city car have been canned as a result.
When you create ambitious products nobody wants, it's easy to run up big debts.
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Don 4:09PM (6/13/2007)
I'm not sure why this thing has carried on from 1998...it's been a financial disaster year after year.
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Lee Gibson 4:43PM (6/13/2007)
The Catch-22 theory of investing. That sounds like a terrific idea.
You know that Nintendo is smashing Sony and Microsoft, right?
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Tony 5:08PM (6/13/2007)
I'm not sure about this but a friend told me that some Corporate Loss can be writing off. Daimler has suffered loss in Mercedes, Maybach and Chrysler.
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