Smart CEO David Schembri is betting the brand can bring on a burst of sales by taking advantage of the new Cash-for-Clunkers program tentatively scheduled to go into effect late this month.
Smart USA, the maker of the pint-sized fortwo 2-seater, is betting the new Cash-for-Clunkers program can kick-start sales.
Like the rest of the industry, Smart has been hit hard by the recession, a situation compounded by the decline from last year’s record fuel prices. With fuel prices were racing towards their $4-a-gallon peak, sales of the little fortwo soared well past the company’s original forecast of 15,000 to 20,000 a year. But since then, they have fallen sharply. For the year-to-date, Smart is down 25%, and June volume plunged a whopping 56%, compared to the same month last year.
With fuel prices again on the rise, and with Congress finally approving the so-called “clunkers” legislation, Smart officials are hoping they can reverse that decline. Because of the fortwo’s mileage rating, buyers who trade in a qualifying used vehicle should get the full $4,500 government incentive. To further enhance the brand’s appeal, Smart has set aside a special batch of fortwo models, reducing their price to $13,335, including delivery charges.
“We think it will be a strong seller,” said David Schembri, president of Smart USA.
The question is when the program will begin. The long debate over what is officially known as the Car Allowance Rebate System, or CARS, is blamed by some for actually suppressing the U.S. auto market, in recent months, potential buyers sitting tight, waiting for the windfall incentive program to begin.
It’s now up to NHTSA, the National Highway Traffic Safety Administration, to finish writing the rules for the clunkers program,. At the earliest, it is expected to become operational on July 23rd, though it could push into August before the incentives become available.
But whenever it finally takes effect, Schembri said he expected “double-digit” increases in sales for Smart – the only automaker that already meets the 35.5 mile per gallon fuel economy standard set to be implemented in 2016. Schembri points to the success of other cash-for-clunkers programs, including one in Germany, which was credited with an overall 29% surge in the country’s previously-stalled car market, in May.
Though the final details are still to be set in stone, the basics of the CARS program require that the vehicle being traded in be less than 25 year old, and that it had a combined fuel economy of no more than 18 mpg when new. It must be drivable and, to prevent scam artists from running to the neighborhood junkyard, the clunker must have been continuously insured for the year prior to applying for a voucher.
If the clunker qualifies, it could be eligible for either a $3,500 or $4,500 voucher, depending on the amount mileage improves.
To increase the appeal of the clunkers program, Smart will offer qualified buyers a balloon payment program with a monthly note of $99 or less a month – depending on the actual trade-in value of the old vehicle and any cash downpayment. At the end of the 36 months, there’ll be a $6667 final payment due. Alternatively, buyers can opt for a 4.2% subsidized rate on a more traditional loan.
The CARS program will do more than just drive business to Smart, Schembri contends, adding that it “validates” the brand’s business proposition. Smart currently offers just one product, the barely 8-foot-long fortwo, though it is sold in a variety of configurations, including the base coupe, a convertible, and the sporty Brabus edition.
Next year, Smart will launch limited production of a battery-powered version of the fortwo, with full production scheduled to begin in 2012.
“I think we’ve only tapped the potential for a brand like ours,” the automotive veteran told TheDetroitBureau.com. “The trend is towards more fuel-efficient, more urban-friendly vehicles that have an emotional appeal,” added Schembri, noting that there’s a growing list of subcompact and mini-cars already available in the U.S., with more coming in the near future.
Despite some speculation, however, he said Smart does not plan to add any other models, distinct from the fortwo, at any time “in the foreseeable future.”
Smart isn’t the only automaker looking to take advantage of the CARS program. And a number of dealers are ready to weigh in with promotions of their own. AutoNation, the country’s biggest auto retail network, will offer qualified buyers an extra $100 for each mpg improvement they make with the vehicle they trade in on.