Fiat 500 TwinAir

* Price: £13,000 (est)* Engine: 900cc, two-cylinder* Transmission: Five-speed manual, front-wheel drive* Power: 84bhp* Torque: 145Nm* 0-62mph: 11.0 seconds* Top Speed: 107mph* Economy: 68.9mpg* Emissions: 95g/km* Standard kit: Blue&Me USB connection, MP3-compatible stereo, air conditioning, seven airbags, 15-inch alloys* On sale: September

Size matters. And for Fiat, it's a case of the smaller the better with its new TwinAir 900cc two-cylinder engine.

On the outside, there's little to distinguish the two-cylinder Fiat from any other 500, aside from this new blue colour which debuts on the car. It's the same story inside, where retro oversized dials reminiscent of the original 500 meet the clever Blue&Me data logging system which analyses your driving and gives you tips on how to drive more efficiently.

Video: watch CarBuyer's video review of the Fiat 500

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But as soon as you turn the ignition key, it's clear that there's a very different powerplant under the bonnet. Fiat describes the TwinAir unit as a manifesto for its latest engine technology. So as well as being smaller, it is the first engine to be developed from scratch to make the most of Fia's MultiAir system.

It uses electro-hydraulic control of the inlet valves, rather than a conventional camshaft, to manage the amount of air entering the engine. This allows more precise management of combustion, reducing fuel consumption.

As well as boosting efficiency, the managed air flow improves low-down torque, while the more constant flow of air keeps the small turbocharger spinning, pushing power up to 84bhp.

At idle, the engine chatters into life, making a noise similar to a diesel but with a more breathy character. It's quiet, especially in the cabin where you’d be hard pressed to notice that you weren't sitting in one of the other petrol units in the range.

But once you move off the sensation is quite different. Below 2,500rpm, the engine feels just like a conventional four-cylinder. It pulls surprisingly well too, helped by short gearing to make the most of the unit's power and 145Nm of torque. The gear ratios are widely spaced, which means you need to use the engine revs more to make good progress, especially if you press the fuel-saving ECO button which restricts torque to 100Nm.

But above 2,500rpm the soundtrack changes, sounding more like a small motorbike than a car and in tune with the Fiat's original 500 which was also powered by a two-cylinder unit.

What's surprising is that although the engine note is unfamiliar, the refinement is impressive. Thanks to a balancer shaft which counterweights the action of the cylinders, vibrations are well isolated. Were it not for the characterful soundtrack, the unit feels similar to an equivalent 1.4-litre four-cylinder unit.The icing on the cake is fuel economy of nearly 70mpg and thanks to CO2 emissions of just 95g/km, owners taking delivery later this year will be able to enjoy road tax-free motoring.

Rival: Smart ForTwo
As well as a downsized engine, the Smart is a downsized car. But its tiny proportions make it easy to negotiate city roads, while the unique styling is more modern than the 500's retro chic. Thanks to a clever Mitsubishi-sourced three-cylinder engine, the Smart runs the Fiat close in the fuel sipping stakes, but it's expensive and only has two seats.