Just how small should a car get? In the 75-year quest to produce the ideal city car, the motor industry has come up with a number of gems, the Austin 7 (1927), the Fiat 500 (1957) and the Mini (1959) among them.

It has also produced some claustrophobic absurdities. Who could ever feel dignified, let alone safe, in one of those carbuncular bubble and micro-cars that erupted at the time of the Suez Crisis when petrol looked as if it might be rationed again? It would take a brave or bloody-minded motorist to take to the road today in an Isetta Motocoupe, a Reliant Regal or a Bond Minicar.

And, who can forget the Sinclair C5 fiasco? Yet, until the C5 was put through its paces (or lack of them), it really did look as if we might take to the miniature electric car as we had to the pocket calculator, the Sony Walkman and the Swatch watch.

Oddly enough, Swatch - maker of more than 120 million plastic fashion watches since 1983, and one of the manufacturing success stories of all time - is leading the race to produce the first truly convincing micro-car. Two feet shorter than Alec Issigonis's space-cheating Mini, the prototype Swatch Eco-Sprinter and Eco-Speedster models were unveiled last Friday in Stuttgart.

They have the look of cars (one a coupe, the other a soft-top) that will sell. They also look as if they could be a hoot to drive. Designed and built in collaboration with Mercedes-Benz, the Swatchmobiles promise, on paper at least, to be safe and solid as well as fashionable and fun. If produced, they will cost somewhere between pounds 7,000 and pounds 10,000.

But, why Swatch?

Swatch is famous for the quality and reliability of its famous plastic-bodied, battery-powered, quartz movement watches. It is equally celebrated for the sheer panache of its worldwide marketing operation. Single-handedly, Swatch has taken the Swiss share of the world watch market from 15 per cent in 1983 to more than 50 per cent today. Fashion-led, its beautifully engineered consumer goodies are likely to push Seiko, the world's largest clock and watch manufacturer, into second place by the turn of the century.

Swatch is also at the leading edge of plastics, battery and electronic motor technology, sponsoring 50 research engineers at Swiss universities.

Mercedes-Benz is simply one of the very best car manufacturers. Its engineering is peerless. What attracts Mercedes-Benz to Swatch is the fact that Swatch products are just as well-made as Mercedes cars, but a lot more fun. The Stuttgart car-maker wants to make smaller, more fashionable cars now that its great autobahn-expresses are becoming regarded as dinosaurs by the ecologically correct. The combination of the adventurous Swiss outfit with the fail-safe German engineers sounds appealing, if quixotic.

Swatch is spearheaded by the voluble Nicolas Hayek, a 66-year-old Beirut-born Palestinian self-publicist and engineer. Mr Hayek, who emigrated to Switzerland in 1953, is fond of saying that he is 'better known than the president of Switzerland'. While this is easy enough to swallow (can you name the president of Switzerland?), Hayek is a media personality who enjoys being provocative. He says that to be successful on a global scale today, a wrist-watch - and by extension, a micro-car - 'must also,' he says, 'be a provocation'.

What Hayek brought to Swatch was marketing pazzazz (he did not design the watch; this was the work of a self-effacing team of Swiss engineers led by Jacques Muller). He plans to launch the Swatchmobiles at the 1996 Olympic Games in Atlanta, to attract a global audience. The cars are expected to go on sale the following year.

Hayek had tried before to develop a 'Swatchmobile' with Volkswagen. Certainly, it would have made a convincing successor to the late lamented Beetle. There was much talk of mass-producing the Swatch-VW in China and selling the cars for just under pounds 5,000. But VW pulled out last year, abandoning Hayek and the token pounds 3m that it had invested in the project.

Volkswagen is now developing its own micro-car, the Chico, a larger and more conventional machine than the two Mercedes-Benz Swatches that made their debut last week. Perhaps VW feared a re-enactment of the Sinclair C5 debacle. It also plans to build a limited run of a new-generation Beetle, selling for between pounds 8,000 and pounds 10,000.

Just 95in long and 55in wide, the Swatch cars are truly tiny. They will be able to insinuate two adults and their shopping through the densest city traffic. An underfloor powerplant (most probably a petrol-electric hybrid) will be designed to accelerate these eco-age bubble cars on a par with a standard Ford Escort, and to speed them along at nearly 90mph. Fuel consumption should be meagre, giving the cars 350 miles between fill-ups, and, despite lightweight plastic bodies, Mercedes-Benz engineers will try to ensure that these will not crumple easily in a crash.

Swatch is likely to employ the talents of dozens of artists and designers as well as engineers in the making of these entertaining machines: expect to be offered any colour - and any combination of colours - you want, including black. It is not difficult to imagine Swatch producing limited editions of the cars styled by the most outlandish avant-garde artists, setting up its own fan club and calling in the world's sharpest advertising and marketing agencies to ensure that this is the VW Beetle, 2CV, Fiat 500 or Mini of tomorrow.

Hayek has proved that he can accelerate a cheap, if ingenious, plastic watch from nought to the auction rooms in less than 10 years. Original Swatches change hands today for well over pounds 200 (in the shops the watches cost pounds 20 in 1983, and pounds 23.50 today), while the more avid members of the Swatch Collectors of Swatch Club, formed in 1990 (membership 100,000-plus worldwide) have paid up to pounds 40,000 for one of the limited edition 'art' Swatches. A presentation box of six different-coloured furry Havana Puff watches (you blow the fake fur away from the watch face when you want to tell the time) are worth at least pounds 100,000 in the auction rooms.

When Swatch opened a shop in Covent Garden for one day only in December 1992 for the sale of its 'Chandelier' special edition (with multi-coloured glass beads decorating the strap), it sold 1,000 watches an hour for four consecutive hours. Tempers frayed at Harrods, a year later, when 1,500 Swatch buffs fought over the sale of 500 limited edition designs: 'it stopped just short of fisticuffs' said a bemused spokesman for the store.

The car market is ripe for a Mini replacement. The Mini was dreamt up, designed and engineered by a Middle Eastern emigre. It was the cleverest and most fashionable car of its day. If it failed to live up to commercial expectations, this was because the whole project was chronically underfunded.

The Mini was put into production far too early. It was riddled with faults and barely made a profit. And the British Motor Corporation was not exactly famed for imaginative advertising campaigns. But, it was so very nearly a global car.

If the Mini has endured, it is because of the underlying brilliance of Alec Issigonis's design. More than five million Minis have been sold over the past 35 years. Better built and marketed, it could have topped the number of VW Beetles sold - a record 20 million plus (the car is still in production in Mexico). If only Nicolas Hayek had been around in Britain 35 years ago, the Mini might have sold like Swatch watches do today. With the right mix of hype and Mercedes-Benz know-how, the Swatchmobile may well be the city car we have all been waiting for.

(Photographs omitted)