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It will generate further innovation and a wider audience, but first you have to have those companies that are willing to try new things.
And I know, I know: Better technology has been out there for years. The auto corporations have deliberately turned their back on that technology (a la Who Killed the Electric Car?). But Americans themselves have been only too willing to drive SUV's and luxury cars with lousy gas mileage, all in the name of fashion. So if you want to finger point, you can look in the mirror.
As one of the people who participated in the Smart car test, I really did enjoy the ride. If money were not an issue, I would love to drive a small, fuel-efficient car designed exclusively for city travel.