Indeed, the Smart was a highway-legal car. In the US, it's been possible for years and years and buy a golf cart functional as a "city car" for far less than $12k that you can only use on residential streets or in planned communities. They're very widely available. Virtually nobody actually does this. At least in the US, it's an existing option that is not a viable market segment whatsoever.

Most larger cities in the USA have expressways/interstate highways through the core or as beltways or both. Yes you can get around on surface streets but most people will want the option to use the faster roads.