The Smart's story begins somewhere in Switzerland where Swatch CEO Nicolas Hayek decided that he wanted a car to bear the company's name, a “Swatchmobile” (Smart actually stands for Swatch Mercedes Art) so they contacted Volkswagen but the German company was struggling with financial troubles at the time and had to pass on the offer. It was Daimler Benz who finally decided to greenlight the project.
In order to make the car, a new factory was built in a place names Smartville in Hambach, France in 1994. Everything seemed promising at first but soon Swatch and Mercedes entered a conflict over design and overall performances of the future car. So, before the car was even done, Swatch pulled out, leaving Mercedes to complete the project.
Sales started in 1998 and proved promising at first because the Smart had stirred a lot of enthusiasm from people in al 9 countries it was being sold. Confident in the model, Mercedes launched two more Smarts, the Roadster and the Roadster Coupe in 2003. In 2004, the Forfour, a slightly bigger Smart came on the market.
These later models were not received as well as their predecessors and many customers weren't impressed by the design and considered them too expensive. Daimler lost a ton of money of the project (4 billion euros between 2003 and 2006 according to sources) and so decided to pull the plug on most of the models.
The Forfour and the Roadster found their demise during that move and the Fortwo (the old City-Coupe) was redesigned just to be able to stay on the market. They made it slightly bigger and gave it an interior make-over but they didn't solve the problem with the controversial sequential transmission that had a notorious lag.
When you think about it, the whole car is rather controversial. You either hate it or you love it, there's no way you can be indifferent, it's that kind of car.