Import firm dreams big about the future of tiny cars

Business & Economy Business & Technology By CLINT SWETT - - In a window-clad showroom on a busy downtown corner here, the future of U.S. motoring could be on display.
Scattered across the polished linoleum floor of the ZAP auto distributorship are brightly painted "micro-cars" with names like Smart, Obvio! and Xebra.

All carry two people, get extraordinary mileage and park in spaces not much bigger than a desk.
Steve Schneider, who broke into the auto industry while working at a Renault dealership two decades ago, is chief executive of ZAP (Zero Air Pollution), a publicly traded company that imports these pint-size cars into the United States.

He's convinced a confluence of events _ soaring gas prices, unrelenting turmoil in the Middle East and increasing fears of global warming _ means Americans are ready for the miniature, environmentally friendly runabouts.

Micro-cars, which are generally half the length of a beefy Chevy Tahoe SUV, are ubiquitous in Europe and Asia, where stratospheric gas prices and crowded streets make them highly practical.

But among American drivers, with access to relatively cheap gas and a love for brawny vehicles and the open road, the tiny cars have never caught on.

That could change soon, experts say. The Smart car, for one, could become a big U.S. seller when its manufacturer, DaimlerChrysler, begins importing it in 2008 at a price expected to be less than $15,000.

"It appears there's a significant market for micro-cars," said Philip Reed, consumer editor for the automotive Web site Edmunds.com. "People are really frustrated with high gas prices."
David Anderson of El Cerrito, Calif., recently bought a Smart car from a Nevada dealership after seeing one on a trip to Europe. He said the parking, fuel economy and handling make it well worth the $25,000 he paid.

"It's (made by Mercedes) so it drives a lot better than we expected," said the law-enforcement retiree. "Everywhere we go, people see it and they just love it."

Anticipating reactions like Anderson's, ZAP brought its first Smart cars into the United States in 2002 and spent $10 million developing ways to modify them to meet U.S. safety and air pollution standards.

Like other micro-cars, the Smart car is so compact it can park head-on to a curb and not stick out into traffic. It boasts gas mileage that ranges from 40 to 75 mpg.

And to meet safety concerns, it's built with an internal roll cage similar to those found in NASCAR race cars, designed to protect passengers in case of a crash.

ZAP says it sells every Smart car it brings into the country, even at $25,000 each. About 280 have gone to dealers in other states, and another 350 are awaiting safety and emissions modifications for the American market. ZAP said it is currently seeking authorization from California regulators to sell the cars there.

Within 90 days of exhibiting a U.S.-ready Smart car at a National Automobile Dealers Association show in early 2005, ZAP said it received more than $2.2 billion in purchase orders from dealers around the country.

"You would have thought we were passing out $100 bills at our booth," Schneider said of the attention the Smart car drew at the show.

But when ZAP officials met with DaimlerChrysler in March 2005 to explain their marketing strategy and the modifications they're doing for the U.S. market, things turned ugly, according to a suit ZAP filed against DaimlerChrysler last October.

According to the suit, filed in Los Angeles County Superior Court, ZAP announced it would place a purchase order with DaimlerChrysler to bring more than 76,000 Smart cars into the United States.

Shortly afterward, according to the suit, DaimlerChrysler officials said publicly they knew nothing about such an order and questioned ZAP's financing, as well as the safety of its modifications _ even though the cars had already passed muster with all federal and most state regulators.

Its credibility questioned, ZAP saw its stock plunge from $5 a share in late 2004 to $1 a share in May 2005, and as low as 25 cents by the end of last year. It has since rebounded to about 70 cents a share.

The suit hasn't yet gone to trial, and DaimlerChrysler spokeswoman Bettina Singhartinger declined to comment, citing the pending litigation.

Last month DaimlerChrysler announced its own plans to sell the Smart car in the United States at a price that could be $10,000 below what ZAP charges.

Meanwhile ZAP continues to buy Smart cars through independent brokers in Europe and then modifies them to meet U.S. standards at a plant in Southern California.
Despite the high price, ZAP says demand is relentless.

Tom Day, an auto dealer in Scottsdale, Ariz., said he's sold more than 30 Smart cars since March, at about $28,000 each.

"I have everyone from teenagers to (rock star) Alice Cooper buying them," he said. His customers like the the car's look and its high gas mileage, which some buyers have told him tops 70 miles to the gallon. He compares the car to the Mini Cooper, a car with such a high "cool"-quotient that it sells briskly despite a price that can exceed $30,000.

Even if its Smart car business is eclipsed by DaimlerChrysler's expected leap into the U.S. market, ZAP has alternatives waiting in the wings.

One is the Xebra, a Chinese-built three-wheel electric car, which costs less than $10,000 and has a range of up to 40 miles between charges.

Larry Dye, who owns Electric Wheels Inc. in Salem, Ore., said he's taken delivery of 11 Xebras and sold them all, mainly for getting to and from work, he said.

ZAP is also preparing to import the Brazilian-made Obvio!, a flashy 175-hp rocket with Maserati-style doors that open like butterfly wings. Schneider said ZAP could bring Obvio!s into the market by 2007 and sell them for as little as $14,000.