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The diminutive Smart car was the brainchild of a Swiss-Lebanese entrepreneur by the name of Nicolas Hayek. Born February of 1928 in Lebanon, Hayek started his business career with a Swiss reinsurance company.  When his father-in-law was taken ill, Hayek took over the management of his wife’s father’s engineering concern. This experience led Hayek to eventually found Hayek Engineering. A turnaround specialist, Hayek was responsible for saving some of Europe’s largest corporations.

In this role, Hayek was approached by a group of bankers in the early 1980s to manage the dissolution of two low-end Swiss watchmaking companies whose business models were proving unworkable. Intense competition from Japanese manufacturers like Citizen and Seiko was decimating the two companies’ business models. However, Hayek believed the companies could survive, as well as thrive, if they’d restructured their production operations and reposition their brands.

Hayek’s proposal coincided nicely with the introduction of new technologies permitting watches to operate with fewer parts, which meant their cost of production decreased significantly. The result of this technological breakthrough was the Swatch watch. Rather than killing the two companies, Hayek merged them. He then assembled an investment group to acquire a majority position in the new organization; Société Suisse de Microélectronique et d'Horlogerie, or SMH.

The company would eventually become known as the Swatch Group.

Having installed himself as Chairman and CEO in 1986, toward the latter half of the decade Hayek got the idea to produce a car using the same strategies responsible for the sales success of Swatch watches. His thought was a small and stylish car designed specifically for use in cities would be well received by the same sorts of people who liked the Swatch watch.

Hayek initially brokered a deal with Volkswagen to co-develop the car, but it fell apart when a management change at Volkswagen lead to the ending of the agreement. Hayek, having seen this coming, approached BMW, Fiat, GM and Renault, before finding sympathetic ears at Daimler-Benz—the parent corporation of Mercedes-Benz automobiles. In 1994, it was announced SMH and Daimler-Benz would partner to form Micro Compact Car AF (MCC). Daimler-Benz took the majority position with 51 percent of the shares in the new company.

The Mercedes-Benz California styling studio rendered two concept cars, the “eco-sprinter” and the “eco-speedster”. The model eventually known as the Smart Fortwo would evolve from these concepts. Hayek wanted the car’s name to incorporate the word “Swatch” in some way. Two ideas along those lines were “Swatchmobile” and “Swatch Car”. The management team at Daimler-Benz were reluctant to associate the car that closely with the watch brand, and suggested something incorporating the Swatch group’s name but with a bit more neutrality.

Internally, the project was being referred to as the “Smart car” at MCC. The Smart name was an acronym derived from the phrase Swatch Mercedes Art car. Just as he had with the Swatch Group, Hayek’s goal was to keep production costs as minimal as possible. To accomplish this, the development team came up with the idea to have the car’s suppliers share the development costs.

Designer and engineer Johann Tomforde had already been working on a city car concept for Mercedes-Benz. His manufacturing strategy was based around a modular assembly system wherein the project’s suppliers would design, assemble, and install their own aspects of the car’s makeup—using their own employees. This greatly reduced the financial burden on MCC. It also limited the fiscal and legal liabilities.

Working this way meant the French auto supplier Faurecia (For-see-uh) did the seats; the interiors were produced and installed by the German company VDO, the chassis and door modules were effected by the Canadian company Magna International; the door panels were produced by the German company Dynamit Nobel; and the German Krupp company executed the suspension system.

The purpose-built factory was established in the town of Hambach, in France—near the German border.

Even with this system in place however, more capital was ultimately needed to see the project through to fruition. Daimler-Benz came through with another round of financing—in exchange for another 30 percent of the company. This expanded its position to an 81 percent ownership of MCC.

The car was launched as the Smart city-Coupé in nine European countries in 1998. And though Hayek’s original idea was for a hybrid powertrain, consumers warmly received the resulting conventional rear-engine, rear-drive powertrain. Daimler-Benz eventually bought Swatch out altogether, making MCC a wholly owned subsidiary of Daimler-Benz. The name was changed, first to MCC smart GmbH in 1999, then to smart GmbH in 2000.

With the success of the City-Coupé, an effort was made to expand the model range. This resulted in the development of the Smart Roadster; and a rear-engine, rear-drive, four-door, four-seat supermini, called the Smart Forfour. Plans also included the creation of a minivan to be called Formore.

The City-Coupé was renamed the Smart Fortwo to fit the revised model name strategy. Ultimately, all of the other models failed—leaving only the Smart Fortwo in its coupe and convertible guises. After losing quite a bit of money, Smart GmbH was dissolved. Its operations were absorbed directly into what was then known as DaimlerChrysler. Daimler-Benz had merged with the Chrysler corporation in 1998.

Smart cars came to the United States in 2008, marketed for Daimler-Benz by Roger Penske’s Penske Automotive Group. Prior to this, the cars had been imported as grey market items, which were then modified to meet American emissions and crash standards. The formal announcement of the deal between DaimlerChrysler and the Penske Automotive Group came in June of 2006.

Penske’s organization created a new U.S. dealership network for the cars from the ground up and offered an updated version of the Smart Fortwo at a price starting at $12,000. For customers, the process of acquiring the car originally entailed placing a reservation over the Internet for $99. The initial wait was about 12 months. By 2011 though, it was obvious sales were too slow to support an independent dealer network.

The deal with Penske was scrapped and Mercedes-Benz USA assumed responsibility for marketing Smart automobiles in the United States. The current line up (as of July 2013) consists of the Smart Fortwo “Cabriolet”, which is the high-cost convertible version; the Smart Fortwo “Passion”, which is the mid-priced moonroof version of the hardtop coupe; the Smart Fortwo “Pure”, the low-cost basic version of the coupe; and the Smart Fortwo “Electric Drive”, which is the electric version of the micro car.