The Peugeot 208 signals the beginning of a new era for the French manufacturer. No longer will the world’s second oldest car company ignore its rich motorsport heritage and create cars approved primarily by accountants. The new Peugeot 208 is a sign that despite Europe’s financial problems, someone, somewhere, is still making fun cars.

The 208 is a vast improvement over the car it replaces. Although the wheelbase is identical, exterior dimensions have actually shrunk, making the 208 smaller than the Peugeot 207. Furthermore, the French have taken a two-stage approach to the new 208 range. The three-door and five-door are almost two separate cars, they are designed to be different in order to appeal to a wider audience. The three door is more masculine and aggressive, while the five-door is more neutral and conservative.

Peugeot doesn’t hide the fact that it based the look and feel of 208 three-door hatch on the iconic 205 of the 80s. The Peugeot 205 was one of the most successful cars in the insanely dangerous Group B rally championship of the mid to late 1980s. Although Peugeot has been successful in many other forms of motorsport, the 205’s rally success cemented Peugeot’s motorsport reputation for an entire generation.

Alas, times have changed. Car companies are obsessed with maximising profits, reducing emissions and downsizing. Peugeot is no different, but at least the car enthusiasts inside the company have had a big say in the development of the 208 and one needs to spend just a few minutes behind the wheel to notice.

The base model Peugeot 208 Active starts at $18,490, which makes it competitive against many models in the mid-high light car segment. The likes of Volkswagen Polo, Fiat 500, Ford Fiesta and even the Mazda2 are noteworthy competitors. The French have opted for a four equipment grades, three engine choices and two body styles.

A 1.2-litre three-cylinder petrol engine that pumps out 60kW of power and 118Nm of torque starts the range. Available only in one grade with a five-speed manual, it’s highly unlikely to be a volume seller, but its low starting price will entice more showroom visits from potential buyers.

After a near hour-long drive of the three-cylinder 208, we can confirm that it provides adequate performance for day to day driving needs. It’s by no means a hot-hatch (or even a warm-hatch) but if you’re looking for a city runabout with some nice gear in it and don’t mind driving a manual, it’s hard to fault. The gearbox is smooth and gear changes are simple. There’s a bit of that three-cylinder drone and you do have to rev it hard to keep up with traffic if the road gets hilly, but it’s actually somewhat enjoyable to drive as oppose to being a chore. Peugeot claims it will sip just 4.5L of fuel per 100km, but expect mid to high fives in the real world.

On the road the tiny 15-inch tyres do their best to hold on and given the limited power and torque, are good enough for city and highway driving. Ride is firm but easy to live with for a daily. As with all true Peugeots (discounting the SUVs made by Mitsubishi for the French), steering feel is superb, precise, without play and begging for input. It would definitely be one of the highlights of the Peugeot ownership experience.

Inside, the entry-model Peugeot 208 can arguably claim to have the classiest interior of any car under $20,000. Soft touch plastics on the dash and glossy plastic help create a nicer ambience than we were expecting for this price range.

The party piece, however, is the 7-inch high-resolution touch screen that drives the 6-speaker sound system with steering-wheel controls. Standard equipment across the entire 208 range. The screen does everything from controlling your Bluetooth telephone and audio streaming to iPod and USB connectivity as well as displaying average fuel economy and speed readouts. It’s unfortunate that it doesn’t have satellite navigation (available in Europe), but now we’re just getting picky. Peugeot has taken the brave move of removing the CD player entirely, which is commendable as its target market of young buyers (30-40 years old) are unlikely to be stuck in the last decade.

The steering wheel is much smaller than we’ve ever seen in a mass-production car and almost small enough to be confused for a toy. It’s accompanied by an instrument cluster (with a digital speedometer) that is positioned higher than usual. This is meant to allow the driver quick and easy access to speed readouts but we found the top of the steering wheel blocking the speedometer in our ideal driving position (as seen in the picture above), so we had to change the steering wheel’s position to adjust.

The three-door provides very generous room for the front passengers but the rear seats can be troublesome if you plan on carrying tall adults frequently (headroom is fine, but the legroom can be an issue). The five-door will accommodate four large adults without complaint.

Safety is taken care of by six airbags that together with the long array of active electronic safety features allow for a maximum five-star EuroNCAP rating under the new and tougher testing scheme introduced this year.

Add $3,000 to the price at you’ll get upgraded to a 1.6-litre engine with 88kW and 160Nm of torque coupled to a four-speed automatic. Yes, it’s a four-speed auto, which is about as modern as Chuck Norris, but it’s also likely to be as reliable, which is why the French have stuck with it. We didn’t get a chance to drive the auto as cargo ships carrying the cars from France (where all Australian delivered 208s are made) were delayed. Expect it to arrive in just over a month.

Step up another $500 ($21,900) and you’ll find yourself in the mid-spec Allure 1.6-litre manual. Coupled to a five-speed manual, the 1.6’s additional power and torque over the 1.2-litre is certainly helpful for everyday driving and provides a more refined driving experience.

Allure variants gain dual-zone climate controlled air conditioning, 16-inch alloy wheels, rear parking sensors, LED daytime running lights, automatic lights and wipers, sports seats and a leather steering wheel. Going up to Allure is certainly worth the extra $2,500 asking price and likely to be the most popular grade.

The next engine in the lineup is the BMW-PSA developed 1.6-litre turbocharged four-cylinder petrol, which is only available as a three-door and in manual only. This engine has seen duty in many states of tune both in the Mini Cooper (owned by BMW) and many Peugeot and Citroen vehicles. It has proven reliable, consistent and the perfect candidate for a lightweight hatch. In this application it provides 115kW of power and 240-260Nm of torque (overboost).

Around the Gold Coast Hinterlands, we were genuinely surprised by its performance. Even from the outside the twin-chrome exhaust pipes are very GTI-like in their appearance. Power and torque are aplenty and although it officially takes more than 8 seconds to reach 100km/h from standstill, in-gear acceleration is instant and linear.

Pushed hard into a bend the 208 will absolutely understeer. To make matters worse, the nanny-controls come in hard and fast and essentially shut down power and any sense of fun you may have planned. The chassis feels so tight that any mistake is felt through the whole car.

The rear can get a little loose if you go over slippery roads but the steering feel is so good that you can almost forgive all its other faults. Our biggest issue, as we decimated kilometre after kilometre of mountainous terrain, was the right hand side visibility around corners. The position and size of the A-pillar is such that it may prove difficult for some drivers to clearly see oncoming traffic from the right. It’s not a deal-breaker but it certainly caught our attention.

Unlike the naturally aspirated versions, the 1.6 turbo is linked up to a six-speed manual gearbox that is much tighter and hence more engaging. The turbo costs $26,490 and gains all features of the Allure plus nicer wheels and some additional sporty touches inside.

For the same coin you can opt for the Allure Premium, which makes use of the 1.6-litre naturally aspirated engine with a four-speed automatic as well as a Cielo glass roof with LED light guides, cornering fog lights, dark tinted rear windows, half leather seats and 17-inch alloy wheels. An extra $1500 will get you full leather seats.

If you’re not one to crave spirited drives, you’ll be more than happy with the naturally aspirated engines. If you must have more power and can’t wait for the Peugeot 208 GTI that comes out next year, the current Allure Sport is a very decent package. In case you’re wondering, don’t hold your breath for a diesel, it’s currently manual only and not looking likely for Australia anytime soon.

Peugeot has taken the 208 under its new fixed priced servicing scheme, so the maximum yearly fee you’ll pay for a service in the first three years is $270. The scheme is a great incentive to dispel the apparent “higher-servicing” costs that are associated with European cars.

The new Peugeot 208 range is impressive no matter how you look at it. It offers a complete package with plenty of style and sophistication, heaps of great features all at very reasonable prices.