I have heard plenty of excuses repeated as to why they did this, all of which are shit.
"It came from the factory with one fitted"
Nope.
"Some of the early ones did"
Nope.
"It is made by Mercedes"
Nope.
"It looks good"
Nope.
"I bought my smart from a Mercedes dealer"
What about the 1st 5 years when there were dedicated smart dealers?
Not all new smarts were sold by a Mercedes dealer.
"It makes it easier to explain to people who don't know"
If you can't explain it's made by a company called Smart, don't explain it
"The engine says Engineered By Mercedes-Benz"
So what? The 451 engine was engineered by Mitsubishi. The 453 engine was engineered by Renault and Nissan.
The engine in a Noble M12 is a Ford engine. There are more parts in the 450 engineered by Bosch, are you going to add Bosch logos to your smart?
"Smart is owned by Mercedes"
At the time of production, the 450, 451 and Roadster were made by smart whose parent company was DaimlerChrysler. Mercedes parent company was also DaimlerChrysler. Saying the Mercedes owned smart is like stating that you are your brother's father. In 2007, DaimlerChrysler became Daimler AG.
"SMART stands for Swatch Mercedes Art"
OK, are you putting a Swatch logo on your car too? Originally, Swatch tried to team up with VW.
Would you have put a VW badge on your SVWART?
At the end of the day, it's not a Mercedes because it's a smart. You can tell by the smart badges.
There are 2 actual reasons why people do this.
Ignorance
They actually believe their excuses and reasoning.
Insecurity
They can't afford a Mercedes and think that if they put a Merc badge on their car, people will play along with the story they have made up. Much like people who wear a bad wig.
Having a Mercedes badge on your car doesn't make everyone else think you have a massive dong.
Quite the opposite. No one thinks the smart is a Mercedes.
As I say, you do what you like.
Just don't get all shirty when other people think you're a prick and your car looks gash.