How BMW's Mini Trumped Daimler's Smart Car

When Daimler introduced its tiny Smart two-seater in 1998, it was convinced that a high-end micro-car for crowded urban areas was an idea whose time had come. It had—just not for Daimler. Three years later, BMW rolled out its own diminutive model, an update of Britain’s vintage Mini, which soon surpassed the Smart and evolved into a family of roomier small vehicles. In addition to losing control of an urban car market it helped create, Smart has racked up more than €4 billion ($5.3 billion) in losses, according to estimates by Sanford C. Bernstein analyst Max Warburton. “Smart had the wrong strategy,” says Ferdinand Dudenhoeffer, director of the Center for Automotive Research at Germany’s University of Duisburg-Essen. “The niche for two-seaters isn’t that big. They lost a lot of time while Mini systematically expanded its model portfolio.”

Until recently, Daimler has relied almost exclusively on Smart’s diminutive flagship model, the fortwo, to power sales. That’s kept the car’s size in the spotlight, requiring the brand’s marketers to continually reassure buyers that it’s a robust vehicle rather than simply trumpeting its fun-to-drive features. At the North American International Auto Show in Detroit in January, the Smart display showed a mockup of its steel frame to highlight the car’s overall safety; Mini’s display featured its new roadster, mounted on airborne roller coaster tracks, to trumpet the controlled thrill of its handling.