Smart Moves: Microcar Goes for Big Splash
July 03, 2007

For more than a year, paper shades have covered the giant windows of an old car dealership on busy Telegraph Road in Bloomfield Hills, Michigan, home to Detroit’s automotive captains. Occasionally a teensy, quirky car is parked outside; one seen only in photographs or at an auto show, if at all.

Inside the building, well, there’s not much: a couple of offices within the cavernous shell; empty cubicles in a color scheme of yellow, silver and black; and a few inhabitants.

But in the next several months, this place will be bustling. The former dealership is the corporate headquarters for Smart USA, the Roger Penske-operated distributor of the quirky Smart cars from Mercedes-Benz.

The dealership also will be converted to an operating Smart dealership –- one that will be a prototype for other dealerships across the U.S.

Dave Schembri: At Home With Smart

Among the few living souls in this unassuming command central –- and the pilot of the Smart car sometimes parked outside –- Dave Schembri, the president of Smart USA, is the man in charge of bringing the European brand to life in the U.S.

Schembri is not here often, however. He’s more likely to be in Stuttgart shepherding the Smart project or traveling across the States promoting the brand, introducing the microcar to prospective buyers or recruiting dealers.

For Schembri, heading Smart in the suburban Detroit headquarters is like coming home -- in more ways than one.

A native Detroiter, Schembri was in marketing at Mercedes-Benz when the idea of bringing Smart cars to the U.S. was being kicked around. Smart got the greenlight, and Schembri was assigned to launch and run Smart’s U.S. operations for the German automaker.

But DaimlerChrysler’s then new CEO Dieter Zetsche, also head of the Mercedes-Benz group, put the brakes on Smart’s plans for the U.S. in January 2005 as the automaker considered the very future of the money-losing Smart.

A disheartened Schembri left Mercedes within a month, taking the head sales and marketing job at turnaround-seeking Mitsubishi Motors North America.

That stint turned out to be brief. The situation at Mitsubishi, where executives were coming and going, became “interesting,” as Schembri describes it, to the point that he decided to leave. Almost to the day of making his decision, Schembri got a call from Roger Penske, who was attaining the rights to sell Smart in the U.S. Penske wanted Schembri to head the new wholly owned Smart subsidiary.

“It’s rare in someone’s career to leave and get a second chance to launch a brand I love so much,” said Schembri, a 30-year veteran of automotive marketing, in an interview with AutoObserver. “It’s the best job I’ve ever had, and I hope I have it for the remainder of my career.”

Smart Timing

What turned out to be a postponement for Smart’s U.S. debut now looks like a blessing in disguise.

Rising gas prices have small car sales sizzling, and based on Edmunds.com’s analysis of consumer intent, small cars will grow even hotter. According to Edmunds.com’s analysis, small cars are showing the largest increase in interest by car shoppers of any vehicle segment right now, suggesting sales will increase over the next few months.

“The timing is right for so many reasons. It is the right car at the right place at the right time,” said Schembri.

Gas prices for the targeted 40-mile-per-gallon Smart car and environmental consciousness are a couple of pluses. And at under 9 feet long -- 40 inches shorter than the Mini, the Smart can fit into parking spots of congested urban centers.

Schembri also pitches Smart as a good value. Costing an average of $15,000, every Smart will come standard with stability control, four airbags, antilock brakes with electronic brakeforce distribution. Schembri anticipates strong insurance ratings, low maintenance costs and high residual values, leading to a low overall cost of ownership.

And yet the Smart looks like no other car on the road and can be personalized and accessorized to make it individual.

Positive Signs

At the time AutoObserver interviewed Schembri, signs were indicating a positive start to Smart.

Smart USA was just launching a national show-and-tell of the two-seater Fortwo, the first Smart that will go on sale in the U.S. beginning in early 2008. In May, Smart kicked off a 44-city, 60-stop road, starting in Los Angeles, with a 38-foot tractor-trailer carrying four Smart Fortwo models, safety exhibits, accessory displays and lifestyle information. The truck parks in a location for about a week and ties into local events that draw crowds of possible Smart customers. This month, Smart adds two more such trucks to traverse the country.

“We think the best way to market is to allow people to see, feel, touch and drive the car,” Schembri said. Indeed, the Smart cars on the early road shows already have logged thousands of test-drive miles.

Smart also had just announced it had received 20,000 paid U.S. reservations for the Fortwo. Prospective Smart buyers plunked down a fully refundable $99 deposit to reserve their Fortwo hardtop, to start at under $12,000, or convertible, priced around $17,000 convertible.

A year ago, Smart USA opened its Web site. Since then roughly a million individuals have visited the site. About 52,000 people have signed up for the monthly newsletter. When Smart took the next step of creating its paid reservations process, it opened the first two weeks only to subscribers, before allowing the general public to participate.

“The response to both exceeded our most optimistic expectations,” Schembri said.

Look Ma, No Advertising!

“And we’ve done all of this without one bit of advertising,” noted veteran automotive marketer Schembri. “What we’ve done over the past year is more effective than anyone could have hoped for through traditional media.

“Just like the car is unique, everything we do on the marketing side is unique,” added Schembri. “You won’t see any traditional marketing come out of Smart USA.

Instead, Smart will focus on experiential marketing, like the road shows and Internet activities, and “discovery marketing.”

“Our brand needs to be experienced to be understood -- discovered,” Schembri said. “Consumers feel good about discovering a good product, something that has a wow factor like this car does.”

Take, for instance, Schembri’s latest discovery. The passionate and enthusiastic Schembri swirls around in his chair during the interview, taps into his computer and shows off his find: Sling Box, the $199 gadget he bought at Radio Shack that allows him to operate and watch his home television on his laptop anywhere in the world.

“People love to discover products that they want to tell someone else about that they have similar lifestyle,” said Schembri. “That’s the phenomenon we’re finding with Smart.”

Smart Customers

Prospective buyers range from the entry-level, budget-conscious first-time buyer, to the “metro cool” thirtysomething, to the empty nester or baby boomer adding to the household fleet to everybody in between. “We’ve not defined our market by age or income, but by attitude and lifestyle –- this is a creative class, early adopters,” said Schembri.

Schembri describes prospective Smart buyers as the first to try new restaurants, to see the latest movies, to check out the latest products. They have an urban and environmental orientation. They want a car that’s fun to drive and is expressive.

The Internet has also proven to be a valuable tool for Smart’s planning and confirmation of its notions. For instance, Web activity validates what Smart execs thought would be the brand’s strongest markets. “California, New York, Texas, Florida, Illinois and Michigan have all come up very high on the list of states for Smart,” said Schembri, adding, however, Smart has orders from people in every state including Alaska.

The Penske Connection

Smart USA’s headquarters is located at its Michigan address for one smart reason: it’s just up the street from the corporate headquarters of Penske Automotive Group, the new name (as of July 2) of the former United Auto Group, which owns and operates 311 car dealerships that generate more than $10 billion in revenues annually.

Smart USA has a scant 10 employees but can tap into the vast resources, expertise and skills of the Penske Automotive Group as well as other Penske operations, such as its logistics, truck and leasing business.

That’s a huge advantage, Schembri believes. “We’re reinventing processes but we’re not reinventing the retail car business,” he noted.

And Smart has access to Roger Penske, the racer-business man with the Midas golden touch, who is playing a hands-on role in the launch of Smart. Penske has called the launch of Smart in the U.S. his company’s most important challenge. Penske’s auto operations have been looking to broaden its business lines and exploit profitable niche markets.

Smart and Penske are taking advantage of the lessons of those who have gone before, not only the obvious Mini but also Toyota’s Scion and Lexus, Starbucks, even family restaurants. They’ve also studied Smart operations in the other 36 countries where the car is sold, including neighboring Canada and the United Kingdom where Penske’s dealerships sell Smart. Smart has sold 770,000 vehicles since its European launch in 1998.

“We’re learning from others and our colleagues but we’re learning as much as we can right from the customer through the Internet,” said Schembri.

Smart USA has plenty of interest from dealers as well as potential customers. Between 1,200 to 1,400 dealers originally expressed interest in the franchise. About 700 were invited to four meetings held across the U.S. to explain the product and the process. Nearly all officially applied, and the list was winnowed to 50 to 75 dealers. They will be selected based on their facilities, plans and location to name a few criteria.

Mercedes-Benz dealers are given preference because they have built-in efficiencies as part of the Mercedes family. About seven of the prospective dealers belong to the Penske Automotive Group.   

Facilities vary. Some will be exclusive, stand-alone Smart dealerships. Others will have a separate entrance and showroom within a Mercedes dealerships. Still others will merely have a partition between Smart and Mercedes.

Smart plans to start delivering letters of intent to dealers soon. It plans to have 40 to 70 dealers operational when the first shipments of Fortwo cars arrive in January, with good coverage spread across the U.S.

Smart Future

If Smart is successful, the quirky little car will not be the rare sight it is today, Schembri hopes.

“Five years from now, I hope we’ll look back and see we were ahead of our time because we were introducing a minicar when other companies were just studying it. Five years from now, my goal would be for the minicar to be an accepted segment within the auto industry,” Schembri said.

“And,” added Schembri, “five years from now, on any given day, you’ll see a Smart or two on the road."

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