SAN FRANCISCO – In the fall of 2007, Penske Automotive Group picked this City by the Bay for the U.S. media introduction of the diminutive Smart Fortwo micro car.

The program included stops in San Jose, so the car could bask in the high-tech glow of Silicon Valley, and ended here at the Golden Gate Ferry Building on the Embarcadero.

Nearly four years later, purely by coincidence, Toyota’s Scion youth brand chooses this same location – just across the street from the Ferry Building’s historic clock tower – to stage the launch of the iQ, a city car that is infinitely better and more enjoyable than the Fortwo.

Literally and figuratively, the iQ picks up where Smart left off.

Where the rear-wheel-drive Fortwo is unstable on rough pavement, underpowered and marred by a clunky 5-speed automated-manual transmission, the front-wheel-drive iQ feels much more substantial, handles well, employs a capable continuously variable transmission and has 24 hp more than the Fortwo. What’s more, the iQ’s bigger engine is happy with regular unleaded. The Fortwo requires premium.

Plus, the iQ’s fuel-economy rating is 36 mpg (6.5 L/100 km) in the city, topping the Fortwo by 3 mpg (1.2 km/L). In the combined drive cycle, both vehicles achieve 37 mpg (6.3 L/100 km).

Icing the comparo is the iQ’s interior, which offers ingenious asymmetrical “3+1” seating and 60% more passenger volume in what Toyota calls the world’s smallest 4-passenger car.

Three adults fit comfortably as the passenger seat slides forward up to 11.4 ins. (28.9 cm), thanks to relocating the air-conditioning system from behind the right side of the dashboard to behind the center stack. The glovebox also is gone, replaced by a bin below the passenger seat.

This clever configuration allows two 6-ft. (1.8-m) males, namely Chief Engineer Hiroki Nakajima and Scion Vice President Jack Hollis, to sit one in front of the other. A small child also could fit behind the driver. On the other hand, the Smart car, as its name implies, is only for two.

Is it fair to view the iQ in the context of Smart’s poor-selling micro box?

Absolutely. These are the two smallest cars on the road, and the nearest rival is the Fiat 500, which is nearly 20 ins. (50.8 cm) longer, 307 lbs. (139 kg) heavier and $2,235 more expensive (base price), and its backseat is useless for adults.

Much of America may scoff at cars this size, but more are on the way as fuel-economy mandates lurk.

But the iQ hardly is flawless. It achieves an unimpressive 24.4 mpg (9.6 L/100 km) during a sedate 17-mile (27.3-km) drive loop through undulating city streets, according to the trip computer – far short of the EPA estimate.

A vehicle weighing just over 2,100 lbs. (953 kg) and powered by a 1.3L 4-cyl. all-aluminum engine should be capable of better real-world fuel efficiency.

And the hilly streets of San Francisco are not the best showcase for the iQ, because the engine tends to whine on steep grades as the pulleys of the CVT expand and contract in an effort to locate the most efficient gear ratio.

On these roads, the engine generally runs at between 2,000 and 4,000 rpm, generating more racket than some drivers will find acceptable. However, the noise level is much less bothersome when tooling around the relatively flat roads of Golden Gate Park.

Having the transverse-mounted engine so close to the driver’s knee surely creates noise-management challenges. Hopefully there’s room for more damping material.

’12 Scion iQ
Vehicle type Front-engine, 3-door front-wheel-drive, 4-passenger hatchback
Engine 1.3L DOHC all-aluminum I-4
Power (SAE net) 94 hp @ 6,000 rpm
Torque 89 lb.-ft. (121 Nm) @ 4,400 rpm
Bore x stroke (mm) 72.4 x 80.5
Compression ratio 11.5:1
Transmission Continuously variable
Wheelbase 78.7 ins. (200 cm)
Overall length 120.1 ins. (305 cm)
Overall width 66.1 ins. (168 cm)
Overall height 59.1 ins. (150 cm)
Curb weight 2,127 lbs. (964 kg)
Base price $15,265
Fuel economy 36/37 (6.5-6.3 L/100 km)
Competition Smart Fortwo, Fiat 500, Mini Cooper
Pros Cons
Reasonably fun to drive Hills tend to be noisy
Ingenious 3+1 seating Fuel economy weak
Cute, cool, comfortable Hard to take seriously

One way to mitigate noise is to switch to a 3-pedal manual transmission, which already is available in Europe and Japan. Hollis says bringing the manual to the U.S. is an option, but only the CVT will be available at launch.

Canceling out noise is a worthwhile exercise for the iQ development team. With a starting price of $15,265, the iQ falls in line with (but is much smaller than) the Nissan Versa, Honda Fit, Ford Fiesta and Toyota’s own Yaris B-segment subcompacts.

From an NVH standpoint, some of these vehicles offer luxury-car refinement (and a lot more space) when compared with the iQ.

But the iQ will find a devoted core of buyers who love its ample headroom, low stance, incredibly short overhangs, funky polka-dot seat fabric and cartoonish proportions.

As with the Fortwo, lots of people will want to experience the iQ, if only for a test drive. Finding serious buyers from the Scion demographic pool should not be difficult.

For maximum impact, these customers will opt for the exterior color of “Hot Lava,” a blazing shade of volcanic orange.

Nevertheless, the iQ is about more than quirky good looks. Angular front fenders are designed to direct airflow upward, and A-pillar moldings are engineered to push air to the side. Coefficient of drag is a respectable 0.31.

Side mirrors fold for easy parking in confined urban areas and integrate turn signals for safety.

The 1.3L I-4 appears for the first time in the U.S. as part of a new engine family. The unique compact differential sits ahead of the engine and transmission.

The dual variable-valve timing system, similar to that in the Scion xD and tC, helps the iQ achieve a ULEV II emissions rating. When decelerating, without throttle application, fuel is cut off to boost fuel economy.

With 94 hp and 89 lb.-ft. (121 Nm) of torque, the iQ accelerates to 60 mph (97 km/h) in 11.8 seconds.

A high-mount rack-and-pinion electric power steering system makes the iQ fun to drive, with a turning circle of only 12.9 ft. (3.9 m).

The front suspension consists of a MacPherson strut configuration designed to “give” a bit when cornering, while the rear suspension employs an inverted torsion beam developed exclusively for the iQ to improve handling. The rear shocks also are placed further back, to free up rear-seat hip room.

An 8.5-gallon (32.1-L) plastic fuel tank sits beneath the driver’s seat and measures only 4.7 ins. (11.9 cm) deep.

Inside, the iQ feels like a more expensive car, with plentiful soft-touch surfaces, high-grade plastics and a leather-wrapped red-stitched steering wheel with integrated audio controls.

Artsy flourishes distinguish the door trim and center stack, including a V-shaped faux metallic trim piece that surrounds the audio (and optional navigation) system and drapes downward from the windshield to a focal point on the center of the dash.

Climate-control knobs are configured vertically, smartly creating the illusion of additional space between the two front seats.

Like the Fiat 500, the iQ’s doors are tall and deep – perhaps even large enough to swing out and damage other cars in parking lots.

Safety will be a prime consideration for potential iQ buyers contemplating its compatibility with large SUVs and pickups.

Eleven standard airbags are strategically hidden within the iQ, including front seat-cushion airbags designed to hold the hips and body in position during frontal crashes.

The rear head restraints are dangerously close to the backlight, so protection in rear collisions comes from an industry-first rear-window airbag that surrounds the head restraints, creating a protective wall above shoulder height.

Crumple zones at the front and back are designed to absorb crash energy, and the front wheels are designed to disperse energy in certain types of collisions.

Crash-test ratings are not yet available from the National Highway Traffic Safety Admin. or Insurance Institute of Highway Safety.

Scion officials are reluctant to put a sales target on the car but hint that 20,000 units might be doable in its first full year on the market.

Sales begin in October on the West Coast, including Hawaii and Alaska, followed by the South and Southeast in January, New York and the East Coast in February and the Midwest in March.

An electric version also will be available, but Scion officials aren’t saying when.

Despite some minor quibbles, this micro-subcompact is positioned to succeed where the Smart car failed. Through the first six months, the Fortwo has remained on life support, selling only 2,706 units, according to Ward’s data.

A high iQ is not necessary to know Scion’s newest entry should do significantly better.