City and local foes United lock horns on Sunday in the first Manchester derby of the season.
During his eight years at United, Schmeichel did not lose one Manchester derby and the Red Devils were undoubtedly the best team in the city.
The Danish goalkeeper won five Premier League trophies between 1991 and 1999 while City plummeted to the third tier of English football.
But the 50-year-old thinks the balance of power has well and truly shifted in City's favour.
"In my first couple of years (at United) I didn't understand (the rivalry with City)
Liverpool and Leeds were the much bigger," Schmeichel told BBC Sport.
"Now it's different
Man City are the champions, they had their second Premier League win last season and maybe at the moment they are a bigger club than Manchester United in terms of results so the significance has changed."
Schmeichel spent one season at City before retiring and his son Kasper came through the youth system at the club before leaving five years ago.
The Champions League winner is still very much a United fan, though, and admits playing against Sir Alex Ferguson's team in City blue was a "very weird" experience.
Just like many other United supporters, Schmeichel has become concerned by the inconsistency shown by the team since Ferguson retired.
United had hoped Louis van Gaal would steady the ship following David Moyes' woeful 10-month spell at the helm, but the Dutchman has only won three games so far and his team sit eighth in the table with nearly a quarter of the campaign gone.
Going into Sunday's game at the Etihad Stadium, Schmeichel is concerned about United's indifferent form, which has seen them earn a creditable draw with Chelsea but lose to Leicester and Swansea.
"It (the derby) is a tricky one for Manchester United because of their inconsistency," Schmeichel said.
"When you looked at how the season was going to pan out for any team last year you would say Man City were favourites (for the title).
"Eventually they did win the Premier League, but this year they have Chelsea as competition
They had a slow start and we don't really know where Man City is, but United have been so inconsistent.
"They have defended badly and then well, scored a lot of goals and then not a lot of goals - the Leicester game was the best example of that.
"They went 1-0 up, 2-0 up then 3-1 up and lost 5-3
That's unheard of.
"That's not Manchester United or the way they want to be
We don't know what we will get on Sunday."
Although the arrivals of Angel di Maria and Radamel Falcao lifted spirits at Old Trafford, Schmeichel is worried about United's poor performances at the back.
United have conceded 13 goals so far this season
Everton are the only other team in the top half to have conceded more.
And unless Van Gaal adds more steel to his back four in January, Schmeichel thinks the United boss can kiss goodbye to any hopes he has of qualifying for the Champions League.
"I think it's work in progress for Louis van Gaal," said Schmeichel, who played 398 times for United.
"His signings were good this summer, they lifted the fans and brought hope, enthusiasm and belief it can be done, but we need to tighten up in defence.
"Conceding that many goals is never going to win you anything.
"We have the January transfer window coming up.
"Traditionally Manchester United don't buy in that window, but we did last season (when the club bought Juan Mata) and I think they have to do that this season.
"We have to tighten up at the back and then they will finish in the top four."
Source : PA
Source: PA