Toyota's rise in becoming the world's second largest automaker has been marked by the excellence of its luxury Lexus line and hybrid engine program, but this new, second-generation Yaris is a solid reminder that Toyota earned its way into this elevated position by building good, basic transportation.

The Yaris, however, is better than just good. This replacement for the unloved Toyota Echo boasts the good looks, suave road manners, perky performance and well-tailored interior that establish new benchmarks in the entry-level game. And this will cause the increasing competition in that market many sleepless nights figuring out how to offset Toyota's deep well of talent, materials and technology.

The Yaris combines the economies of an inexpensive sticker, outstanding fuel mileage and the solid integrity that underlies every Toyota vehicle. Sure, certain aspects of the car, such as noise isolation and driving position, are far from ideal, but the Yaris owner will never feel as though he or she had to settle for second best, even if they didn't have to pay much to get the best.

The first generation of Toyota Yaris has been sold in Europe since 1999 and became Toyota's best seller there, and it also won many honors, including the 2000 Car of the Year. However, the Yaris that's coming to America is built off an all-new platform, and whereas the first Yaris was offered only as a three-door liftback, America's traditional indifference to the body style means we will also get a four-door sedan in the line-up.

The Toyota Yaris has an appealing look to it. We never warmed to Toyota's previous subcompact, the Echo, which tried too hard to look different and ended up looking just goofy.

Though they share platforms and powertrains, the Yaris liftback and sedan were developed under different chief engineers and design teams, providing the entry-level buyer with two distinctive choices in a small, economical subcompact. Toyota is one of the few automakers that can afford such luxury of manpower, and it was put to good use in the Yaris project.

The liftback was designed around the theme of "powerful simplicity," but our first impression was that it's cute as the proverbial bug. With its wedgy profile, large front halogen headlamp clusters, creased hood lines and "T-grille," it has all the character that its predecessor, the unloved Echo, never possessed. Virtually every exterior element is body-colored, but the Yaris avoids looking like a featureless blob due to strategic placement of black trim around the base of the A-pillar, on the B-pillar, on the two strips that run the length of the roof, the front grilles and foglamp surrounds at the base of the windshield.

The rear hatch opens down to the bumper line and raises just high enough to allow a six-foot-tall person to stand under it. Like everything else about the Yaris, the hatch's function feels just right. Opening of the hatch is well damped by two struts, and closing it takes no more than a gentle downward push.

The Yaris sedan's theme is "Simple is Cool," which is based on the Japanese art of flower arranging, where unnecessary decoration is shunned in place of a single, simple design. Its long, stretched cabin, arched beltline and short overhangs give it sporty proportions, and the multi-reflector halogen headlamps lend it a premium look. Longer and wider and riding on a much longer wheelbase than the Echo sedan it replaces, the Yaris sedan has proportions that work together to create a sportier car.

Despite their distinctive styling, both the sedan and liftback share a 0.29 coefficient of drag, excellent numbers that help quiet the ride and increase fuel economy at cruising speeds.

The Yaris is a marvel of space efficiency with clever cockpit packaging. Its relatively long wheelbase (the longest in class) makes the Yaris cockpit feel quite spacious, especially in the liftback with its tall, extended roofline. Legroom isn't quite as generous as headroom, though six-footers can occupy every seat except the center rear without complaint.

The front seats have supportive, deeply dished backs, but the cushions are flat and short, which means the long-legged will not enjoy optimum comfort and lower-body support. However, the fabric upholstery is classy looking, durable and provides good grip in the corners. Our test car's black upholstery studded with blue dots was especially handsome. Though the seating position is nicely upright and allows excellent forward sightlines, it also feels awkward relative to the steering wheel. The wheel adjusts for rake but not for reach, so it's necessary to pull the seat fairly far forward to assume the proper 10 and 2 o'clock hand placement, and this results in a position that's more like sitting in a chair at the dining table, legs bent at 90 degrees, than in, say, a sports car. The sedan's front seats also feature a height adjustment feature, which helps the driver find a more comfortable position.

Access to the liftback's back seats is provided by a walk-in lever in the shoulder area of the passenger seat. There is no such lever on the driver's side. The rear seats in the sedan and liftback are adequate to the task of hauling passengers over short distances, but the liftback offers the advantage of a recline feature that increases the seatback angle from 10 degrees to 28 degrees. A 60/40 split seat with 5.9 inches of fore and aft adjustability is also available, greatly increasing the liftback's comfort and practicality. A pair of levers on the shoulder of the seatback make the operation a snap. The sedan's rear seating can also be ordered in a 60/40 split configuration, but there is no recline feature.

Luggage space in the liftback with the seats upright is 12.8 cubic feet; the sedan's cargo volume is 12.9 cubic feet. It doesn't sound like much, but the wide rear openings, which extend down to bumper level, make the task of loading and unloading much easier.

Just as the two Yaris models differ in exterior styling, the instrument panels for the liftback and sedan are distinctive, but each features a center-mounted gauge cluster and an overall simplicity of design. The sedan's IP looks a bit more upscale with its dual-toned trim and Optitron illuminated gauge cluster, which includes a standard tachometer for 5-speed manual models along with a 120-mph speedometer, fuel gauge, odometer/trip meter and various warning graphics. Tachs are not available in liftbacks, but they do have three gloveboxes to the sedan's one. Outboard cupholders are standard on both models.

The center console differs in style between the two models, but the stereo and air conditioning functions are, in typical Toyota fashion, equally easy to view and use. Turn signals and lights are operated by the leftside steering column-mounted stalk; the right stalk is for the front wipers (plus a rear wiper in the liftback). Storage bins abound, on either side of the center stack and along the doors. For those cars equipped with the MP3 stereo, the center console includes an auxiliary input.

Overall, the Yaris controls are all very intuitive, the interior is comfy and the trim and upholstery appear classy. There would be no shame in taking the boss out to lunch or your mother-in-law to the opera in a Yaris.

It would be hard to come up with better inter-urban transportation than the new Toyota Yaris, price considered or not. Forget the "entry-level" label. The Yaris feels and performs much better than its MSRP would suggest. The economical 1.5-liter engine has more than enough power to keep up with the pack, the supple ride smoothes out most bumps and dips, the handling is almost sporty when the road opens up, the steering feels classes above entry level, and the brakes haul the 2,300-pound car to a halt with confidence. Pedal feel is direct, and even though the rear brakes are drums and not discs, stopping power is more than sufficient. Pedal feel is especially good (something we can't say about some of the upscale electronic braking systems on the market).

Still, you know this isn't a Lexus, or even a Camry, from the clearly heard engine and some road noise. These are constant reminders of the car's small size and light weight, but there's little else about its road manners to complain about. The reason for that is its extremely rigid structure. Various braces and crossmembers were designed to offset vibration and several types of undercoatings and damping materials were applied to reduce noise, and the results are impressive. Rough road, railroad tracks and potholes are certainly felt but are pleasantly muted by the car's solid integrity.

The Yaris has no problem keeping up with traffic and is especially usable for in-town duty. The engine revs freely and smoothly and will tolerate near-redline rpm without squawking. On the highway, fifth gear is definitely just for cruising, but a quick downshift to fourth delivers comfortable passing power. The 1.5-liter four-cylinder engine features variable valve timing, direct ignition and an electronic throttle. It's the same engine used in the Scion xA and xB.

The standard five-speed manual is a joy to work, both around town and in the wide-open spaces. The shifts are creamy smooth and the gear ratios are well spaced, especially for the cut and thrust of city life. First gear delivers good throttle response, while second and third are flexible enough that it's easy to keep the engine's power flowing smoothly without having to constantly row the shift lever. Fourth gear is good for passing at highway speeds, while fifth allows comfortable cruising up to about 80 mph.

There's plenty to like, too, about the four-speed automatic, which features the first gated shifter in class. Some acceleration power is compromised, but the smooth upshifts and crisp downshifts make it a commuter's best friend. And, like every other control element of the Yaris, the shift lever is well placed and a cinch to operate.

The standard 14-inch wheel and tire package prefers city work to excursions through the canyons. The optional 15-inch running gear sharpens up the handling and steering and makes the car an agreeable companion through the corners. There's still some body roll when the corners get tight, but it comes and goes with no surprises or awkward weight transitions. The front independent suspension is newly developed and is 47 percent stiffer than the Echo. The torsion beam rear suspension features anti-lift geometry for more stable braking and a toe correction function for enhanced straight line stability.

The new electric power steering rack only adds to the confidence-inspiring road manners. Not only does it help fuel mileage by eliminating a power-sapping hydraulic pump, it can be tuned for a specific feel, and Toyota's engineers did a marvelous job making this one feel just right, with crisp response to driver input and plenty of on-center feel.

An economy car must, of course, deliver good fuel mileage. The EPA estimates the Yaris should deliver 34 mpg in the city and 40 mpg on the highway. How much a Yaris actually achieves is entirely up to the driver, as a heavy right foot will make the EPA's estimates seem like gross exaggerations, but because of its flexible powertrain and economy-directed gear ratios, achieving the government figures is not out of the question.

The Yaris is available both as a three-door hatchback ($10,950) and four-door sedan ($11,825). Just one level of liftback is being offered, but the sedan can also be ordered as a sportier S model ($13,325).

All Yaris models are powered through the front wheels by a small but sophisticated 1.5-liter engine with an output of 106 horsepower. A five-speed manual transmission is standard while a four-speed automatic is optional.

Despite being the least expensive Toyota-badged car sold in America, the Yaris boasts generous standard equipment and interiors that appear to be tailored for more expensive models. Because the liftback and sedan were designed separately, there are minor differences in such areas as interior trim and materials and dashboard layout, but each is similarly equipped with such standard items as air conditioning, power steering, a tilt steering wheel, intermittent wipers, rear center headrest, driver and passenger vanity mirrors, front and rear cupholders, digital clock, UV glass and a map light. Differences are few: The liftback's front seats are adjustable four ways, while the sedan's chairs are adjustable six ways, the radio antenna is roof-mounted on the liftback and is placed in the rear window glass of the sedan, and the liftback's rear seat folds down while the sedan's rear seat is fixed.

The standard running gear consists of P175/65R14 radials on 14-inch steel wheels, and the brakes are front ventilated discs and rear drums. The suspension is independent in front and torsion beam in the rear.

The Yaris sedan S package adds an AM/FM/CD player with MP3 capability and MP3 input jack, a 60/40 split fold-down rear seat, rear defroster, P185/60R15-inch radials on 15-inch steel wheels, and revisions to the exterior styling via a front under-bumper spoiler, rear under-bumper spoiler, side rocker panels and unique badge.

Optional packages include a Convenience Package for the sedan that adds the AM/FM/CD stereo with MP3 capability and input jack, 15-inch wheels and tires, rear defroster and 60/40 split/fold-down rear seats. The liftback's Convenience package is similar but does not include the split rear seats and adds a rear wiper.

The Power Package for the liftback contains anti-lock brakes, power locks/windows/mirrors, 60/40 slide/recline/fold multi-function rear seat. Options which can be ordered along with this package include anti-lock brakes, 15-inch alloy wheels, a rear spoiler, fog lamps and remote keyless entry. The sedan's Power Package includes anti-lock brakes, power locks/windows/mirrors, cruise control, unique interior trim and a tachometer (this also requires the Convenience Package). Additional options include 15-inch alloy wheels, a rear spoiler, fog lamps, remote keyless entry and an engine immobilizer.

Safety features include dual-stage driver and front passenger airbags, front seatbelt pretensioners, plus three-point seatbelts and head restaints for all five seating positions. Also available are front seat-mounted side-impact airbags for torso protection and side curtain airbags for head protection for front and rear passengers. We highly recommend these extra safety features, especially in such a small and lightweight car. Always wear seat belts as they are your first line of defense in a crash. Anti-lock brakes are optional for both models; ABS helps the driver maintain steering control in a panic stop.