When we tested the Matiz for the first time, the 2002 model year car was a relatively new kid on the small car block, and it impressed us despite having a tiny three-cylinder engine. A lot of other small cars have since filtered through our hands. A year or so later, fitted with a new 1.0-litre four-cylinder engine, how does the Daewoo Matiz now fare?

The concise answer is; very well. One of the largest motor companies in the world now own and run Daewoo; indeed, General Motors now refer to the company as GM Daewoo (presumably to prevent embarrassing scenarios involving Daewoo-branded electrical goods). If you have an interest in the US car market, you will have noticed that GM market the Suzuki Reno (shown at the 2004 Detroit Auto Show), which is on sale in the UK as the Daewoo Lacetti. In fact, the UK range is on the up after a few years in stagnation. Along with the new Lacetti hatch, we will be getting an all-new Nubira and Nubira Station Wagon this year to complement the facelifted Tacuma MPV, and of course the car featured here – the little Matiz.

One has to be careful when using the word "cheap" in the context of a car. Many cars deserve this tag, but a lot less are actually good value for money when you take a look under the price sticker in the showroom. The low cost of the Matiz is not under scrutiny here though. The range starts with the 0.8 SE at £5,995 on-the-road, with the special edition 1.0 Xtra version pictured here coming in at a miserly £6,295.

The impish exterior does not betray the low price. All panel gaps are even. Proportions may be a little odd thanks to the tall, short and slim body, but the "face" is smiley, and the Matiz is a distinctive car, especially in the Golden Yellow hue shown here. The first hint at penny pinching comes when I look for the central locking button on the ignition key; I find myself amused by actually having to use the key in the door lock.

The door handle itself is pleasantly robust. Stepping into the cabin, the seats have the same feeling of durability. A comfortable driving position is easy to find and all-round visibility is great. Though the interior is very basic, Daewoo has focused on the car's quality above its list of standard equipment (Rover should have taken notice when making the awful CityRover). There may be no rev counter, or even electric windows, but the column stalks are actually nice to use, as is the rest of the switchgear. I don't personally like the shiny plastic on the dashboard, but it is certainly of above average quality.

It is not uncommon for a car's excellent first impressions to evaporate after a couple of minutes behind the wheel on the road. This is not the case with the Matiz. A 1.0-litre city car is not likely to leave two long black lines of rubber as it leaves the multi-storey car park (not unless the driver has forgotten to release the handbrake...). However, the 1.0-litre Matiz has real spark. It reminded us of older small Fiats, and indeed the current Punto, with its willingness. Don't be surprised to see the little Matiz darting through the streets of Florence. Though you will not be punished for revving the four-pot, it is rarely necessary; this is a torquey unit, if not particularly refined at motorway speeds. Matched to the engine is a five-speed manual gearbox with a gearchange that actually encourages the driver to use the 'box. The pedal spacing is good, though my size-10 clutch foot did not have room to rest on the left of the pedals. I suspect that the average Matiz buyer has smaller feet.

The typical city car driver will appreciate the light power steering in the Matiz. Its brakes are a little rubbery, but they have not got a very difficult job to stop the featherweight Daewoo. If you do a lot of motorway/dual carriageway driving, the Matiz will cope with moderate crosswinds, but the engine roar becomes tiresome above 70 mph.

Using the Matiz as it was intended reveals few downsides. Indeed, we can't see a clear reason for buying the 0.8-litre version; the claimed fuel consumption figures are within a few mpg of each other, and somehow, the CO₂ figure is lower for the 1.0-litre (though this will matter more to fleet car buyers). The 1.0-litre engine is more refined than the 0.8 too. The difference in insurance costs, and the £300 list price gap may sway you, but we would recommend the 1.0-litre. If you are quick, you could still pick up a 1.0 Xtra, which celebrates the 1st birthday of Daewoo joining GM. In both 0.8 and 1.0-litre forms, it costs the same as the base SE model, but comes with a list of extras.