After years of sluggish sales, Penske Automotive has announced plans to forfeit U.S. distribution rights of Smart vehicles.

After years of sluggish sales, Penske Automotive has announced plans to transfer Smart's U.S. distribution rights to Mercedes-Benz USA.

While this sounds like an admission of failure, Mercedes apparently initiated the discussions to acquire Smart USA. According to Automotive News, Mercedes sees Smart as critical to meeting the upcoming 2016 corporate average fuel economy (CAFE) standards. Additionally, the company believes they are better equipped to handle the sales and marketing of Smart.

According to Mercedes-Benz USA President Ernst Lieb, "We are very excited about working toward integration of Smart into the MBUSA organization and look forward to working with our dealer partners to exceed customer expectations for this unique vehicle."

As part of the transfer, 21 dealerships that do not sell Mercedes vehicles will be closed - this likely includes Smart's U.S. headquarters in Bloomfield Hills, Michigan which also serves as the brand's "flagship" dealership. Furthermore, the previously announced Nissan Micra-based four-door Smart will be axed. It was originally slated to be launched in the fourth quarter of 2011, but Smart is already developing a ForTwo+2 so there is no longer a need for this particular model.

If everything goes according to plan, Penkse and Mercedes will finalize the transfer of Smart USA by the end of the second quarter of 2011.

Gallery: Smart USA implodes - Nissan-based model axed