Subcompacts face a unique challenge: be small and cheap, offer great fuel economy, yet make the driver and passenger feel at though they’re traveling in a more expensive vehicle. It’s no wonder why most vehicle engineers, faced with fluctuating gas prices and the resulting demand for these types of subcompact vehicles, are now wearing teeth-grinding guards to bed. Yeah. We want it our way. Toyota, of course, delivers, and with a little mustard as well. That would be the Yaris, a stylish, roomy vehicle that offers a quiet ride for its class, pleasant performance and great fuel economy, whether you choose the hatchback or the sedan.

Even with two full-size adults up front, the space inside the Yaris is plentiful. The smart design goes beyond the instrument panel and controls, giving all occupants room to feel as though their personal boundaries are intact. There are no elbow fights going on in the Yaris, and satisfactory legroom throughout the cabin makes this subcompact a comfortable ride. The comfort extends to the drive, as well, a notable achievement when it comes to a subcompact vehicle. Those who have owned small vehicles in the past know well the sounds: the merry whistling of wind on windshield, the groovy tracks laid down by tires on pavement, and other such delightful reminders that yes, there is a volume knob on the stereo.

For the most part, Yaris changes that, thanks to a rigid frame and redesigned suspension that soaks up bumps and eliminates a significant amount of road-borne vibration. At one point during our drive in the Dallas suburbs, we ran over railroad tracks at a steady rate of speed, and were pleasantly surprised at the way the Yaris handled the sudden jostling. Keep in mind, in all this, that with any subcompact you have to accept some road, tire and engine noise.

Just try revving that engine – you’ll hear it. The thing is, though, no matter how whiny the 2007 Toyota Yaris sounds when you goose the throttle, what’s important is how it performs on city streets, during stop-and-go driving and on freeways – the natural habitat for a car like the Yaris. On all accounts, it succeeds marvelously, with a 1.5-liter four-cylinder engine. It’s the same engine used in Scion xA and xB vehicles, one that may be familiar by now to many subcompact drivers and shoppers. And while that proven engine certainly helps the Yaris compete, coming soon from the competition is more get-up-and-go. The upcoming Nissan Versa, for example, will have a 1.8-liter, four-cylinder engine making around 120 horsepower.

We’ll see how that vehicle tests. After all, it’s not just about power, but efficiency, and the Yaris manages a very tidy 34 city/40 highway EPA fuel economy rating. All things equal, the performance and the efficiency you get from the Yaris will make these subcompacts feel like big shots – almost. It’s also about the complete package, and on that score the Yaris is a formidable competitor. Good thing for Toyota, too, as the competition – think Honda Fit and Nissan Versa – is also ramping up with some formidable subcompacts.

But back to the Yaris. In addition to interior quality, it also features a revised suspension and rigid structure that handles potholes and rough road with little complaint. Cornering is good, not great, with a little body roll and squeal from the standard 14-inch tires. The 15-inch upgrade improves the experience, though you’ll still find it best to avoid that canyon “short-cut” while driving the Yaris. The thing is, you won’t feel the need, as it handles freeway driving easily, with smooth gear shifts, peppy acceleration and a nice cruising speed at around 80 mph. Go faster and the subcompact status of the Yaris begins to soak into the cabin in the form of rattles and whines – but if you’re gunning a Yaris, really now…

For our tastes, the five-speed manual is the best transmission, offering good throws, tight gearing and an easily manipulated clutch; it actually borders on fun to drive. The automatic is also well-engineered, though it lags a bit during acceleration. Either way, the Yaris shifts like a commuter car, smooth and easy without compromising verve. Braking, too, offers little by way of compromise: pedal feel during sharp stops or gradual red light slow-downs is accurate and firm. And while the steering is electric, you’d never know it: the wheel feels connected to the ground, with good on-center feel and prompt response to driver direction. That’s arguably more than you, honest subcompact car shopper, have a right to demand from a $12,000 car.