Daimler (DAI) has started offering discounts for its micro-hybrid car, smart fortwo, in the U.S. in order to recoup its depressed sales. In the third quarter, Penske Automotive Group (PAG), which owns distribution entity for the smart for two in the U.S. through its 75 smart dealerships, saw a decline in smart USA wholesale to 3,401 units from 6,683 units in the prior-year quarter.

Last month, smart car’s sales fell more than two-thirds to 661 units in the U.S. It was also the lowest clocked for any month since the car’s debut in early last year.

Smart fortwo – the world’s most fuel-efficient and lowest CO2 emitting car – raised eyebrows in the U.S. with a fuel consumption tag of 36 miles per gallon at the time of its launch when petrol price hovered around $4 per gallon. However, it lost importance over time when the average price slashed by about a third in the recent past.

During the third quarter, Daimler sold 23,600 smart cars, fewer than the year ago level by 8,700 units. Last month, the company’s sales fell 18% to 9,300 smart cars. Sales in the first 10 months of the year went down 14%.

Daimler’s decision to export smart cars to the U.S. was a critical part of its rescue plan for the brand. In 2006, the company began restructuring the brand to make it profitable by 2007 instead of shutting it down.

Presently, Daimler is hopeful about retrieving smart sales as the oil price begins to rise again. However, to what extent the hope will bear fruit remains a matter of uncertainty. Some proponents are of the belief that carmakers would try to comply with fuel-economy standards over the next few years through more efficient engines rather than smaller vehicles. Thus, the company’s effort to regain sales is likely to face many challenges.

We recommend the shares of Daimler as Neutral.

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