The fundamental rule of politics and business follows the same path essential to the preservation of life, and is currently being played out in a mini Iran-Contra affair between ZAP (ZAAP.OB) and DaimlerChrysler over the Smart Car.

This cardinal rule is as follows . . .

When attacked, strike back.

When this rule is ignored, dire consequences circle around the damned like starved vultures with the munchies.

Take the 1988 presidential campaign, for instance.

Dukakis swore he would not participate in the vicious attacks common in presidential races.

All good and grand, if he wasn’t attacked. But, of course, he was.

On the issue of his anti-capital punishment stance and his curious support of allowing convicted first degree murderers out on weekend passes--one of which resulted in a double murder/rape--pro-Bush pundits struck a nerve with aggressive commercials and shattered Dukakis’s hopes of taking the White House despite having had an impressive lead.

Many people were curious . . . why wouldn’t Dukakis say something back?

Well, apparently he wanted to appear to be a man of his word, no matter how foolish--yet admirable--his word was.

Right now, ZAP is facing similar slander.

Get this . . .

Back in 2004 Daimler Chrysler abandoned their Smart Car division in the U.S., claiming there was not enough demand.

In 2005, ZAP took the initiative and started Americanizing Smart Cars they purchased from European dealers. In doing so they secured orders totaling in $2.2 billion. Lack of demand? Ha!

That figure represents a total of 156,000 cars. After seeing that kind of demand, ZAP secured a $425 million revolving credit facility so that they could have the cash up front to purchase the cars directly from DaimlerChrysler.

Daimler Chrysler saw this and probably thought “we can’t have them getting rich on our product.”

In an attempt to squash ZAP’s efforts, Daimler Chrysler put out multiple reports showing their loss of $5 billion in the Smart Car and closed down multiple plants, destroying the jobs of many employees.

As you can imagine, ZAP is more than a little bit pissed off. They had massive sales in line. Although they had accomplished what Daimler Chrysler said was impossible, they had to combat fears of consumers who saw the reports from Daimler Chrysler that claimed the Smart Car was dead.

Fast forward to today, and Daimler Chrysler is preparing to ship Smart Cars to the U.S. in 2008.

The Curious Part about the Daimler Chrysler Smart Car

Daimler Chrysler isn't going to sell their ultra-efficient diesel smart car model that is embraced in Europe and would have been sold by ZAP.

The model sold in Europe has a 799 cc diesel engine that gets 71 mpg while making 45 horsepower and 81 lb. ft of torque.

But the model to be sold in the U.S. gets a paltry 40 mpg. Who wants a $20,000, 40-mpg go-cart when technology for full-size hybrids, electric cars and PHEVs is available?

What this certainly looks like is a desperate attempt by DaimlerChrysler to say “we tried . . . we made a ‘green car’ and no one wanted it.”

That’s what they tried in ’04 before ZAP proved them wrong. And now, after allegedly stealing ZAP’s business, they’re setting themselves up for failure again.

Either they’re incredibly dumb, or think they’re being clever by destroying their Smart Car.

ZAP, however, is no Dukakis. They've since filed a lawsuit against Daimler Chrysler . . .

According to a ZAP press release, “The lawsuit cites eight different counts, including intentional interference with prospective economic relations, negligent interference, trade libel, defamation, breach of contract to negotiate in good faith, breach of implied covenant of good faith and fair dealing, common law unfair competition, and statutory unfair competition. ZAP is seeking damages in excess of $500 million.”

I wonder who will be lining up to bail out Daimler Chrysler after this fantastic mess . . .

Keep your hopes in the future but your sense in the present,

Field Palmer

www.greenchipstocks.com