It could be argued the Smart Fortwo was a car built before its time. When it launched in 2000, some viewed the tiny two seater as a bit of a gimmick. Too much style with too little space.

But times have moved on, and it's exactly the kind of car the nation's cash-strapped motorists are crying out for. It's cheap to buy, cheap to run, looks great; and above all it's fun.

Smart knows it's on to a winner, especially with sales up around 50 per cent on this time last year, and has developed technology to cut running costs even further. Stuart Milne delivers his verdict on the Smart Fortwo MHD – Micro Hybrid Drive.

From November 2008, buyers of the 61 and 71bhp versions of the Smart Fortwo will be joining the hybrid revolution.

The ultra frugal 61bhp model, and Smart's most popular engine, the 71bhp now come equipped with a Start/Stop system with a difference for improved round-town efficiency.

Like other Start/Stop systems, the power is automatically cut when stationary – in the case of the automatic-only Smart, when the driver brakes and the vehicle's speed falls below 5mph – but it starts in a very different way.

Other Start/Stop vehicles restart the car using the battery, with power supplied by the engine. This can mean the engine has to work slightly harder to recoup the power taken from the battery to turn the starter motor.

But the Micro Hybrid Technology in the Smart MHD has a special belt-driven generator that supplies the vehicle’s electrical system with voltage and has a secondary function as a starter. This means the Smart MHD does not a conventional starter motor.

This allows the system to start the engine as soon as the driver releases the brake pedal.

Smart claims MHD-equipped cars have fuel consumption improved by more than 5mpg, from 60.1 to 65.7mph (Coupe) and 57.6 to 64.2mph (Cabrio). Depending on traffic conditions, it says MHD can lead to a fuel saving of 11 per cent

CO2 emissions are also improved, dropping from 112g/km to just 103g/km, meaning tax costs just £35 a year.

In practise the MHD system doesn't work as slickly as we'd hoped for, with a couple of chugs before the engine thrums into live. There's a bit of vibration too; but should it become too much, there's a switch to override the system. Of course, disabling it will mean an increase in fuel economy.

The Smart Fortwo MHD drives exactly the same as the standard car. It is surprisingly planted around the bends, despite its tall and narrow stance.

It also has a firm ride and an automatic gearbox (semi auto is available on higher spec models) which take some getting used to.

Its automated clutch means the driver needs to lift off the accelerator during gear shifts to make smooth progress, rather than keeping the pedal at a constant pressure as with a conventional automatic setup.

Power steering is available as a £310 option, but isn't really necessary as the Smart is so small and light. But specifying power steering makes manoeuvring effortless however.

Its trump card for many is its practicality. It might only boast two seats, but there's a good sized boot, which offers 220-litres of room to rear window height and 340-litres to the roof. That's a maximum of 180-litres more than the Mini hatchback.

A tiny turning circle coupled with the ability to park nose-in against the curb improves its convenience yet further.

Despite the Fortwo's Micro Hybrid Drive moniker, it's not a hybrid in the Congestion Charge sense of the word. That means there's no exemption from the charge, and no out-of-the-box financial gains.

Those gains are there to be made when the car is driven. As a city car, MHD helps to make the Smart Fortwo increasingly relevant in a world where frugality is king.