SANTA MONICA, CA – This trendy beachside community just west of Los Angeles seems like the perfect home for the new ’07 Honda Fit.

The bustling city streets of downtown Santa Monica are a good, dare we say fit, for the vehicle’s subcompact proportions and quirky, but clean, styling cues.

And one of its ingenious interior seating configurations is dubbed “Long Mode,” in which the front passenger seat reclines and the second-row seatback folds forward, optimal for stowing one’s surfboard to and from the many beaches of Southern California.

The 5-door Fit represents Honda’s return to the subcompact segment in the U.S. As its Civic model, launched as a subcompact in 1973, has over the decades grown larger and pricier, American Honda Motor Co. Inc. officials say the brand once again needs a more affordable vehicle for frugal buyers.

Although small and relatively inexpensive, the ’06 Fit possesses the characteristics that one has come to expect from a Honda: a smooth, quiet engine, thanks to features such as hydraulic mounts and a sound-absorbing engine cover; effortless shifting; and quality interior materials.

Riding on a MacPherson strut front suspension and torsion-beam rear setup, the Fit is powered by a 1.5L SOHC 4-cyl. engine that uses Honda’s Variable Valve Timing and Lift Electronic Control (VTEC) technology for improved low-end torque and electronic drive-by-wire technology to provide stronger acceleration response at partial throttle openings.

Although not class-leading (that honor goes to the upcoming Nissan Versa’s 120 hp), the Fit makes 109 hp, higher than that of the Scion xA, Chevy Aveo and Toyota Yaris. Torque is rated at 105 lb.-ft. (142 Nm).

The engine can be mated to either a 5-speed manual or a first-in-class 5-speed automatic transmission.

While Fit is sold in Japan and Europe (where it’s known as the Jazz), with a continuously variable transmission, Honda officials here say their research showed Americans prefer conventional step-ratio automatics, hence the lack of a CVT, which the Versa will offer.

Honda has made it easy for buyers by offering just two trims of the Fit: Fit and Fit Sport.

In the Fit Sport, buyers selecting the automatic gearbox receive steering wheel-mounted paddle shifters, an unexpected high-end touch for an inexpensive car.

In stop-and-go downtown Santa Monica traffic, the Fit Sport with 5-speed automatic is a nimble creature. Upshifts and downshifts are short and immediate.

The paddle-shifter system has two manual modes: Sport, which holds the driver’s shifts, and the other, called Drive.

In Drive mode, a driver does not have to move the shift lever on the console to operate the paddle shifters. After using the paddles in this mode, the vehicle senses whether they are being used anymore, and, if not, returns the transmission to regular automatic mode.

While the paddles work well, they are positioned a bit low for comfort, requiring one’s thumbs to grip the steering wheel to free up the fingers to operate the paddles.

Time would not permit an apples-to-apples test of automatic and manual models, but the 5-speed manual mated to the 1.5L performed admirably ascending the Santa Monica mountains.

The engine possesses adequate torque and shows no sign of strain during the climb. It also proves to be a champ when crawling in traffic on the Pacific Coast Highway, not showing any hint of low-speed hesitation.

The Fit’s high-output electric power steering assist means immediate response in turns and cornering maneuvers, not the kind of performance one expects from a B-segment car.

In addition to its impressive driving performance, what is likely to set Fit apart from the new Kia Rio, Hyundai Accent and Aveo, as well as the more recent Yaris and Versa subcompacts, is its interior flexibility.

Not only is there the aforementioned “Long Mode” seating configuration, but also “Tall Mode,” made possible by moving the fuel tank under the front seat, allowing for a 50-in. (127-cm) floor-to-ceiling space; “Refresh Mode,” wherein the driver’s seat slides forward, the seatback is reclined and the headrest is removed to meet up with the second-row bottom seat cushion; and “Utility Mode,” in which the 60/40 second-row “Dive-Down Magic Seat,” is folded to create a flat loading surface, without having to remove the headrests.

In comparison to Honda’s new ’06 Civic, Fit’s wheelbase is 9.8 ins. (24.9 cm) shorter than the Civic sedan.

The Civic sedan is 19.2 ins. (48.8 cm) longer than the Fit, but the Fit is 3.5 ins. (8.9 cm) taller.

While models in the Civic lineup weigh some 100-300 lbs. (45.4-136.1 kg) more than the Fit and Fit Sport, highway fuel economy is estimated at 38 mpg (6.2 km/100 L) for the base Fit with 5-speed automatic and 37 mpg (6.4 L/100 km) for the Fit Sport with the same gearbox.

All Civic 5-speed automatic models get an Environmental Protection Agency-estimated 40 mpg (5.9 L/100 km) highway.

How the Fit, a car that weighs less and has a smaller, less powerful engine than the Civic, can get worse fuel economy is a matter likely attributable to aerodynamics and gearing.

It is one thing that could possibly harm Fit sales if buyers notice a larger, more powerful car can be purchased for $15,160 (Civic DX sedan with automatic), just $510 more than the Fit with automatic transmission – and the Civic is more fuel efficient at highway speeds to boot.

Then again, if subcompact buyers really are as frugal as we have been told, an extra $500 for a Civic could be a stretch.

Other flaws are minor: the Fit’s heating, ventilation and air conditioning control knobs are difficult to grasp, the interior headliner-mounted grab bars have exposed screws, and an auxiliary jack to plug in an MP3 player is available only on Fit Sport, which has a premium 200-watt sound system. Toyota Motor Corp.’s Scion xA and the new ’07 Chevy Aveo sedan have a standard jack.

At 90.1 cu.-ft. (2.6 cu.-m), the passenger volume of the Fit exceeds that of the Scion xA (86.0 cu.-ft [2.4 cu.-m]) and is nearly equal to the passenger space of the Civic (90.9 cu.-ft. [2.6 cu.-m]).

Although too old a design (the Fit debuted in Japan in 2001) to receive Honda’s advanced compatibility engineering (ACE) safety-enhancing body structure, the car nonetheless achieves a high rigidity thanks to the use of 36% high-tensile steel in various key structural areas.

Honda has made no secret of its efforts to be viewed as a safety leader, however, it incorrectly stated here at the Fit’s media preview that the car would be the first in its class to offer six airbags and antilock brakes as standard.

Hyundai’s Accent and its twin, the Kia Rio, have these features standard for the ’06 model year.

Other standard equipment for the Fit, which begins at $13,850, includes power windows, mirrors and door locks, air conditioning, and 4-speaker AM/FM/CD stereo.

The Fit Sport, which bases at $15,170, adds larger, 15-in. alloy wheels, underbody kit, rear spoiler, fog lights, leather steering wheel and 6-speaker audio system. Adding an automatic gearbox brings the Fit Sport to $15,970.

Honda expects 60% of buyers to opt for the Fit Sport trim. Some 65% of Fit buyers will take an automatic transmission.

The ’07 Honda Fit goes on sale in the U.S. in mid-April. Honda expects to sell 33,000 this year and 50,000 in 2007.

Those numbers seem doable for a car that is both acceptably economical and pleasantly refined for its segment.