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Tiny Car Could Be Big Business For UAG

DaimlerChrysler's diminutive Smart cars could see a big demand in the U.S., and become a lucrative line for their exclusive distributor.

Shares of United Auto Group (nyse: UAG - news - people ) were up 73 cents, or 3.5%, to $21.88, on excitement about the Smart car's American prospects. Last year, DaimlerChrysler (nyse: DCX - news - people ) tapped UAG to distribute its Smart car domestically. The vehicles are expected to hit the streets by the first half of next year.

UAG operates auto dealerships throughout the U.S. and the United Kingdom. DaimlerChrysler chose UAG over its own dealers because of its tighter focus on urban markets, where higher demand is anticipated.

The Smart is a tiny two seat roadster made by DaimlerChrysler's Mercedes unit. The car is just 8.8 feet long. For comparison, a Chevy Suburban is 18.5 feet long. One selling point is fuel efficiency. The car travels 40 miles per gallon under normal driving conditions.

"The vehicle is distinctive and its prospects only improve with higher gas prices," said Bear Stearns (nyse: BSC - news - people ) analyst Michael Geoghegan. Geoghegan also said the Smart should generate more buzz in the second half of the year with a planned tour of U.S. cities. The analyst upgraded UAG to "outperform" from "peer perform" Thursday.

UAG sells both new and used vehicles. A positive sign for the company is CarMax (nyse: KMX - news - people )'s first-quarter earnings. The chain of used car dealerships announced results Wednesday that pushed its shares up by over 10%. Investors had worried CarMax would disappoint because of leveled credit standards and high gas prices that discourage the purchase of bigger vehicles.
 
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