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Minicar Market Heats Up with Brazilian Rival to Smart

October 31, 2005

By Todd Benson

SAO PAULO, Brazil — When a little-known company from California placed a $1 billion order for Smart minicars from DaimlerChrysler last spring, the struggling auto giant said thanks, but no thanks.

So the company, an environment-conscious alternative vehicles distributor called ZAP, went shopping, and found what it was looking for — in Brazil. There, a small start-up called Obvio! was busy developing a sporty and economical minicar for export.

Desperate for lucrative minicar orders from dealers in the United States, ZAP gambled on Obvio!’s slick designs and in September bought 20 percent of the Brazilian company, even though it has never put a car on the road. ZAP also ordered 50,000 minicars, allowing Obvio! to benefit from Daimler’s retreat.

“What we’re getting here is Italian-style quality that people know and love — with Chinese pricing,” said Steve Schneider, ZAP’s chief executive. “That sounds like a winning combination to me.”

The Obvio! 828, a three-passenger microcar designed for city driving, grabbed ZAP’s attention first. Modeled after a similar vehicle briefly sold in Brazil in the 1980s, the 828 will be equipped with a four-cylinder, 1.6-liter, 170-horsepower engine designed to go from zero to 60 miles per hour in just 5.2 seconds.

Obvio! is also developing a sportier model called the 012, with extra horsepower and a race-car design. The 828 is expected to retail for about $14,000, while the price tag on the 012 should be twice that amount.

Both cars will be small enough to fit sideways in a parallel parking space, and will be engineered to run on gasoline or ethanol, or any mix of the two. They will also come with a personal computer on the dashboard that runs Windows XP, allowing drivers to download music and digital radio streams.

Obvio! and ZAP, short for Zero Air Pollution, plan to showcase prototypes of the cars at the San Francisco International Auto Show in late November, even though the first vehicles are not expected to be on the road until 2007.

MINIS WHERE BIG CARS RULE?

Because they get high gas mileage and are easy to maneuver and park on narrow streets, minicars are starting to carve out a niche in Europe. But some analysts doubt they will ever take off in the United States, where supersized sport utility vehicles dominate the streets.

Even the Smart car, which was designed with the European market in mind, has struggled to kick into gear. Since its debut in 1998, Daimler has lost money every quarter on the Smart car, forcing it this year to scrap two of its models.

Brazilian history is also littered with examples of failed attempts to create their own auto product, the most recent being a short-lived fiberglass car called the Gurgel. Brazil’s auto industry has long been dominated by big multinationals like General Motors and Volkswagen.

“I hope Obvio! is successful, but I just don’t see too many chances at this working out,” said Andre Gomide, who runs a local news agency that tracks Brazil’s auto sector.

Executives at Obvio! are certain they will succeed where others have not, by keeping a lid on costs and outsourcing the production process to suppliers who will be required to open a unit in the Obvio! plant near Rio de Janeiro.

“Obvio! doesn’t manufacture anything,” Ricardo Machado, the company’s founding partner, said. “The only thing we do is handle marketing, sales and design.”

And to avoid maintaining costly inventories, a practice that burdens automakers worldwide, Obvio! will only give the green light to assemble a car once it is paid for.

“The operation guarantees great returns for everyone involved,” said Machado, who is also negotiating with potential distributors in Europe and Japan.

As for whether Americans are ready to abandon their big gas guzzlers for minicars, both Obvio! and ZAP are betting that demand for smaller, fuel-efficient vehicles is sure to grow now that high oil prices appear here to stay.

In fact, ZAP’s Schneider says demand for the off-beat cars is so hot that he has stopped taking orders for now.

“In the United States, everyone makes a statement with their automobile,” he said. “These vehicles give you the capacity to be noticed without being too pretentious.”




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