The Mercedes Car Group will keep the Smart brand, top executives at the company said.
"Closing down Smart makes no sense -- we will be able to turn the business around," said Mercedes Car Group CEO Eckhard Cordes.
Smart has completed "80 to 90 percent" of the work on a recovery strategy for the loss-making brand, said Smart President Ulrich Walker.
Walker will announce the results of a three-month review of Smart's operations in early April.
Walker would not provide any hints on the likely conclusions of the review. But the options are believed to include whether Smart should:
Smart has not made a profit since the brand was launched in 1998. German press reports suggest its losses this year will be about E600 million.
"It is not an option to close Smart," said Walker, who became Smart president last October. "We have over 800,000 customers out there driving our products."
Walker said the business model for Smart is not in question, nor is the future of the innovative Hambach plant in eastern France, which produces the brand's signature model, the two-seat ForTwo.
"We are looking along the whole value chain to raise our efficiency. There is room for improvement on the cost as well as the revenue side," Walker said. "We are looking at both in parallel."
He said the second-generation ForTwo will be engineered to meet US safety and emissions standards. Production of the next ForTwo is scheduled to start in 2007.
But Smart will not make a final decision to bring the ForTwo to the US until this summer.