Honda introduced the third-generation Honda City in Australia in 2009, after notching up over one million sales across 39 countries.

The 2012 edition boasts only a slightly revised look but comes with reduced pricing.

The Honda City is essentially a Honda Jazz but with a sedan body and a very, very big boot – 506 litres to be precise.

The two models share almost identical hardware, including the same suspension layout and same 1.5-litre i-VTEC engine.

Despite the sharpened pricing for the City – $18,490 for the VTi and $22,990 for the VTi-L before on-road costs – the sedan is still more expensive than the ever-popular Honda Jazz hatch ($17,790 – VTi, $20,990 – VTi-S).

Recent sales data to the end of June 2012 show year-to-date unit sales for Jazz totalled 4914, while sales for the City across the same period, were just 168 units.

To be fair, some of the sales disparity can be attributed to the Thailand floods (the Honda City is built in Thailand), which impacted supplies of the vehicle up to May 2012.

It’s a shame, because there’s more to this city-size sedan than just a boot that happens to be larger than the Holden Commodore’s cargo hold.

The Honda City’s styling remains fresh, with its updated chrome grille, redesigned front and rear bumpers and new a tail-light design.

The overall look is similar to that of the larger Honda Civic – itself another potential competitor of the City if you consider the entry-level 1.8 VTi-L starts at $20,990 (before on-road costs).

CarAdvice tested the top-of-the-range Honda City VTi-L, which also adds new-look 16-inch alloy wheels.

Inside, there’s class-leading passenger space with more rear seat legroom than most vehicles in the larger small car segment. It’s a definite advantage held by the Honda City over the Jazz (which is still cleverly practical) and other rivals and due entirely to its additional length (510mm over the Jazz).

The rear seats also fold close to flat in a 60/40 split allowing for large items to be stowed and there are multiple storage areas including cup holders, front and rear.

Despite the absence of soft-touch plastics across the dash, it’s a mostly premium look and finish in the VTi-L. We especially like the brushed metal accents around the centre stack, steering wheel and door trim.

The combination stitched fabric/suede front seats are surprisingly comfortable and grippy with sufficient side bolstering to hold you firmly planted in the corners.

We also like the leather-wrapped three-spoke sports steering wheel in the Honda City for its tactility and multi-functionality for audio and cruise control functions.

There are more metallic surrounds in the instrument cluster; while the speedometer has illuminated, 3D markers that further enhance the City’s polished interior.

For features, there’s the usual inventory of electrically operated windows and door mirrors, manual air conditioning and a six-speaker audio system with USB connectivity.

There’s also a retrofit Bluetooth telephone device mounted on the driver’s side A-pillar, but we found that to be temperamental and unintuitive.

Our Honda City VTi-L is only available with a five-speed automatic transmission, which is another plus given four-speed autos are still common in the light car segment.

While the Honda City’s 1.5-litre i-VTEC four-cylinder engine pulls nicely from a standing start, in-gear acceleration isn’t so enthusiastic. There’s a noticeable lack of torque down low, which necessitates the transmission to kick down from fifth to second or third gear even with light-to-moderate use of the throttle – and all too often for our liking.

That reaction also induces an unpleasantly harsh engine note that becomes increasingly irritating after a while.

The Honda City is a car that responds best to gentle throttle inputs, which can also help deliver outstanding fuel economy in the order of 6.6 litres per 100 kilometres (combined), according to official consumption figures.

However the best result we could achieve during our week-long test period with the Honda City VTi-L was 9.4 litres per 100 kilometres, according to the average fuel readout, though most time was spent in urban environments. That’s still over the 8.9L/100km figure published in the Honda City specifications for urban fuel consumption.

On a more positive note, the Honda City rides exceptionally well for a car in this segment, ironing out all but the harshest of bumps for what is a thoroughly comfortable ride.

Not so good is the handling, or steering, for that matter.

The car exhibits excessive body roll on turn in and although it’s not enough to unsettle the Honda City, it’s nonetheless uncomfortable, as is the lifeless and lethargic steering.

The Honda City range does gets disc brakes on all four wheels, though, with ventilated rotors up front for confident stopping power and a nice linear feel to the brake pedal.

Another area where the Honda City measures up is Safety. It has a five-star ANCAP crash test rating and includes a full complement of active and passive safety systems such as dual front, side and full-length curtain airbags, vehicle stability assist with traction control, anti-locking brakes with emergency brakeforce distribution and brake assist.

Against key competitors such as the Holden Barina, Hyundai Accent, Kia Rio, Toyota Yaris, the Honda City manages to shine with its contemporary styling, impressive interior space, comfort and ride quality.

But the Ford Fiesta sedan and Hyundai Accent are significantly more fun and enjoyable to drive.

The Honda City VTi-L is also priced above all of its top-spec rivals except for the Hyundai Accent Premium, also priced from $22,990 but adds more standard features than the Honda.

If you’re after class-leading space and cargo capacity, then the Honda City punches above its city car weight. But the Honda’s noisy engine and poor handling are disappointing and spoil what is an otherwise appealing package.