Less than three metres long but packed with intriguing design features, the Toyota iQ is an unashamedly upmarket city car that will appeal to those who find a Smart too twee. Designed to seat three adults and one child, the interior finish and exterior detailing are several notches above the city car norm.

According to the National Readership Survey (NRS), the AB social grouping encompasses upper middle and middle classes. The As are doctors, solicitors, barristers, accountants and company directors. The Bs include occupations such as teachers, physiotherapists, police officers, probation officers, librarians and middle managers. ABs are people with some disposal income in other words but not so ludicrously old money that they rely on trust funds and family favours. They're also people who might well buy a smart city car like the Toyota iQ.

Toyota isn't the first company to build and market a city car specifically to a more upmarket clientele. It was exactly this business model that Smart profited so handsomely from and Toyota has followed suit with its Prius hybrid vehicle, not strictly a city car in the strictest definition, but most certainly a car targeted at wealthy urbanites. Given that the company already has the cheap and competent Aygo on its books, backed up with the bigger and plusher Yaris, a third tot would seem like overkill but the iQ is a very different proposition. If it wore a Lexus badge, the proposition would be a whole lot clearer.

This is a market sector that looks set for big expansion given the rapidly increasing costs of using a car in many metropolitan areas. Many car buyers will be looking to downsize without sacrificing comfort and style and it's no secret that several premium manufacturers are looking to service exactly this demand. They could learn a thing or two from Toyota.

The engines are improved versions of those which have been used for some time in Toyota's Aygo citycar and Yaris supermini. That means 1.0 and 1.3-litre petrol units and a 1.4-litre D-4D diesel. Like the Aygo, the iQ is urban transport first and foremost, reflected in a sprint to 60mph that takes around 14 seconds in the 1.0-litre version.

"an unashamedly upmarket city car."

At lower speeds the steering's electric assistance makes manoeuvring the car simplicity itself and the minimal front and rear overhangs mean that it's easy to edge into even the tiniest parking places. The tight turning circle means that even if you spot a parking place on the other side of the road, you may be able to throw a quick U-turn to snaffle it. The 1.0-litre petrol unit is billed as the world's lightest production engine.

Ride quality is surprisingly good for what is such a small and inexpensive car and the iQ is one of those city cars that you wouldn't mind driving longer distances. It's able to keep up with the cut and thrust of motorway driving although you might need the odd downchange to keep the smaller 1.0 67bhp engine on the boil.

In order to appeal to an image conscious clientele, the iQ had to look the part and with what Toyota dubs its foursquare 'super stance', it looks like something that's just driven straight from a motor show stand. There's a touch of the toy car about the way the big 16-inch alloy wheels sit at each corner of such a tiny vehicle. The wraparound rear glass, the smoked headlamp units and the door mirrors with inbuilt indicators all indicate that this is no budget city scoot but the real surprise and delight features come inside. The dashboard looks like no other production car and the asymmetric dash and sliding seat configuration allows space for up to three adults and one child.

It's worth getting a little closer and appreciating some of the smart design in the iQ. The seat backs are ultra-slim, releasing another 40mm of rear legroom. The dash is cut away ahead of the front passenger seat, allowing it to slide further forward and free up space for another adult in the back. The rear seats fold flat and there's a storage tray that slides from below the rear seat. A flat under-floor fuel tank, a smaller heater unit and repositioned steering gear all contribute to give the iQ 100mm extra cabin length than the outwardly much larger Yaris.

Toyota has committed to a low carbon dioxide figure for the iQ, with a figure of 100g/km targeted for the entry-level model. Fuel economy is even more impressive than the Aygo, which already manages over 60mpg on the combined cycle in 1.0-litre guise. While there will certainly be cheaper city cars to buy, few will be able to match the iQ's ongoing costs and the residual values of such a premium model are likely to be very strong.

Even if you do have a small shunt, body panels are designed to come on and off very easily, lowering the cost of repair. With such low carbon dioxide emissions, the Aygo is not only a model environmental citizen but it also qualifies for a 100 per cent exemption under the forthcoming London congestion charge legislation, which is well worth knowing.

Perhaps Toyota wouldn't have been the first marque that springs to mind if you're looking for a properly upmarket city car but when it comes to expertise in this field, the Japanese giant yields to nobody. The iQ utilises this experience to good effect and while the badge on the bonnet may smack of the mainstream, the iQ's execution is anything but common or garden. Given Toyota's technical excellence, perhaps the one misgiving is that it doesn't go far enough. Yes, it's extremely clever, makes use of its space very well and looks fantastic but the idea will be imitated and soon. Had Toyota loaded it with technological features, it would have been impossible for all but a handful of automotive manufacturers to get on level terms. Honda and BMW. Mercedes maybe.

As it stands, the iQ is an interesting diversion and one that deserves to do well. As ever with Toyota, the company has brought a model to market while others are still at the conceptual planning stage. Whether it has the legs to deliver is a question only the market can answer.