Think of the smart car franchise and you think of the smart fortwo, the tiny little citycar that launched this car in Europe back at the turn of the century. Brand owners Daimler Chrysler unwisely tried to broaden the marque's appeal with more expensive models in subsequent years - and paid the financial price. Which is why the future plan for this brand is centred solely around the second generation fortwo model we're looking at here.

This fortwo may look almost the same as its predecessor but in fact, exactly 451 changes have been made. They were needed. After all, though there was a lot about the old smart fortwo's driving experience that was very good, many felt that the overall effect was ruined by an utterly hateful gearbox and steering which felt as if it was attached to the front wheels by bungee cords. The good news is that both of these issues have been addressed in the latest fortwo.

The six-speed automated manual gearbox has been replaced by a Getrag five-speed unit which still automates the shift with the help of an electric motor but shift times have been halved which means that you'll no longer suffer that lurch, pregnant pause and then gradual take up of power the old car suffered. Otherwise, it looks much the same with the option of paddles to marshal the gearchange on all models (bar the plush pulse variant where they are fitted as standard). There's also a kickdown function to drop two gears when the driver really wants to get a hustle on.

The steering has been made ten per cent quicker, the standard rack now just 3.5 turns lock to lock. It's still not what you'd call racy but it's a good deal less flabby feeling than before. Electric power steering is also an option, sharpening feel still further. Prices start from £6,900.

Engine-wise, the cubic capacity has leapt from 0.7 litres to 1.0-litre. Two normally-aspirated powerplants are offered, of either 61 or 71bhp and there's also an 84bhp turbo model. This litre lump has been developed in conjunction with Mitsubishi and all three versions offer considerably more torque than the equivalent engine in the previous generation fortwo. Your dealer can also tell you about a 45bhp diesel model which will sup around 3.5 litres of fuel per 100km - which is just over 81mpg in old money. No wonder the Yanks don't get it.

"The latest fortwo is certainly bigger and cleverer"

Taken in isolation, this fortwo doesn't look too different to its immediate predecessor but sit the two cars back to back and it's easy to see where the changes have been made. For a start, the smart is no longer quite the pure design of old, having swelled almost 20cm in length and 4.3cm in width. The track and the wheelbase have also been stretched but the majority of the length has been imposed upon the company by new pedestrian crash legislation.

The car's face looks a little different, with projector lights and a smiling grille aperture, while the side reveals a slimmer aspect to the tridion safety cell in the sill and door area. The door handles have also been rotated around ninety degrees for ease of use. The rear wings are more contoured and the rear window has more slop to it than before. Four instead of six rear lights are now apparent, the fog light and reversing lights now slotted beneath the brake lights and indicator composite units.

Space inside was always very good for two adults (if not their baggage), but the latest car is better still. Somewhat unusually, the passenger seat is mounted 15cm further back than the driver's seat so that shoulder room can be maximised. Smart claims that passengers have an additional three centimetres of elbow room compared to the old car which never felt small even for taller people. Luggage room has also usefully increased from 150 to 220 litres.

Available in both two-door 'coupe' form and soft top cabrio, the fortwo, priced from around £7,000, is offered in three familiar mainstream trim levels - pure, pulse and passion - with sporty-looking BRABUS versions at the top of the range. The entry-level pure model is designed as econobasic entry-level transport, with a two-spoke steering wheel, a black grooved plastic roof and steel wheels. The lower part of the instrument panel is made of grained black plastic, as are the door trims. There are even manual window winders.

If utilitarian chic isn't doing it for you, best to pass the pure by and take a look at the pulse. This is an altogether sportier affair, with a black or silver tridion cell, six-spoke alloy wheels with wider tyres and coordinated fabric on the seats, door trims, knee pads and instrument panel. A transparent polycarbonate roof is joined by a rev counter, clock, three-spoke sports steering wheel, shift paddles, electric front windows, front fog lights and an additional storage compartment in the tailgate. The passion model gets silver painted door mirrors and front grille, twelve-spoke alloys, air conditioning, leather trimmed steering wheel, softouch gear shift plus a luggage compartment cover with a net bag.

There aren't too many cars that can beat a fortwo in terms of cost of ownership. The key thing driving down the pence per mile figure is the residual value of a used example, and this latest model looks set to better its predecessor in terms of used desirability. Then there's the fuel economy. Granted, fortwos don't tend to soak up big mileages but they are often used in cities where many conventional cars return lousy fuel consumption figures. The 61bhp petrol engine will average around 60mpg and the diesel model around 80mpg but around town expect about 55mpg from the diesel car. This will also emit just 90g/km of carbon dioxide, making it one of the cleanest cars on sale and therefore very attractive if one is using the car in congestion charging zones.

Insurance costs are driven down by the fortwo's ease of repair, the elastic plastic body panels being capable of shrugging off typical parking knocks. The white, black or yellow panels are flexible and the colour is deep moulded in, so superficial scratches are hard to spot. It also means that a more seriously damaged panel can be replaced inexpensively without need for costly and time-consuming repainting.

Smart sold over 770,000 units of the old car but still made a big loss. This time round, the company needs, to coin a phrase, to work smarter not harder and the latest fortwo points to the fact that an expensive lesson has finally been learned. Although it is bigger in both body and engine to its predecessor, it nets big wins both in terms of driveability and safety.

The challenge may well come in communicating these facts to a public that will in all likelihood see this car as a facelift of a model that dated back to 1998. The irony is that the smart has never been more relevant. Should pragmatism win the day over a public demand for the most fashionable shape, smart can yet become a jewel in the Daimler Chrysler firmament. Tiny steps, tiny steps.

TOP 5 FORTWO COUPE DEALS

The results below show the top FORTWO COUPE deals on buyacar

	Smart Fortwo Coupe Passion 2dr Auto [84] Coupe
	ETR	Mthly £131	Saving £854	Price £8,128
	Smart Fortwo Coupe Passion mhd 2dr Auto Coupe
	ETR	Mthly	Saving £807	Price £7,706
	Smart Fortwo Coupe Pulse mhd 2dr Auto Coupe
	ETR	Mthly	Saving £782	Price £7,486
	Smart Fortwo Coupe Pure mhd 2dr Auto [61] Coupe
	ETR	Mthly	Saving £646	Price £6,261
	Smart Fortwo Cabrio Brabus 2dr Auto Convertible
	ETR	Mthly £251	Saving £1,477	Price £13,825

typical 13.18% APR

PCP finance quote over 48 months,  10,000 miles pa,  deposit of £1000