The project, started by Swiss watch manufacturer Swatch, was nicknamed the "Swatchmobile". The name Smart is an acronym for Swatch Mercedes ART. Intended to use innovative features (such as a hybrid engine) and be affordable for young people, the Smart had similar design objective to the Citroën 2CV of the 1940s.
Swatch CEO Nicolas Hayek sought an established car maker to produce his Swatch car. After General Motors reviewed and rejected the project as potentially unprofitable, Hayek found a partner in Volkswagen. Due to VW's own financial weakness at the time, plans never reached a final stage so Swatch teamed up with Daimler-Benz. The purpose-built factory complex Smartville in Hambach, France, was established in 1994 as a joint-venture of Daimler-Benz and Swatch.
An Australian dealer web site provides the following summary of the beginnings of the product:
"How everything began: In 1993 Mercedes-Benz started a feasibility study on a subcompact car. Together with the Swatch Group Ltd. they founded the Micro Compact Car AG in 1994. The Smart city-coupé celebrates its world première at the IAA in Frankfurt (Germany) in 1997 and is one year successfully launched in nine European countries. By now, the Smart is available in 25 countries all over the world and was sold over 750,000 times."
The final car design proved to be far from Hayek's expectations: its engine eco-technology was outside of Mercedes' goal. The joint venture experienced heavy losses and dispute then Swatch pulled out.
In 2005, DaimlerChrysler decided against purchasing a 50% share in the Dutch NedCar plant used to manufacture the Forfour supermini. DC also halted development on the Formore and decided to discontinue production of the Roadster.
In 2006, after dwindling sales, Smart GmbH was liquidated and its operations were absorbed within the Mercedes-Benz automobile group. It was later revealed that Smart GmbH lost nearly 4 billion euros from 2003 to 2006.
Apart from the original short Smart Fortwo, a sporty Smart Roadster, a limited production of 2000 concept Smart Crosstown and a supermini Smart Forfour were also offered. These have now been discontinued. There were also plans to introduce a Brazilian-made cross-over based on the body of the ForFour and the AWD hardware of the Mercedes C-class with the name of Formore but industrialization of this was cancelled at the 11th hour (even as tooling was being installed in the assembly plant) due to unfavourable exchange rate swings and spending cutbacks driven by losses elsewhere within smart.