VOLKSWAGEN is targeting all sorts of people with its teeny-tiny Up city car, be it P-platers, young couples, empty nesters, downsizers or just people on a limited budget and not enamoured by the image or quality of Asian runabouts on offer in the sub-$15,000 price bracket.

The sub-light segment is still quite small in Australia, but Volkswagen is confident it will grow over the next couple of years, and has thrown down (or is that Up) the gauntlet with a thoroughly-engineered little car it believes will come to define the segment – or at least draw attention to it.

The three-door Up is $3000 less expensive than the entry-level Polo and costs $500 more than the cheapest Nissan Micra, but $1500 more than a base model Holden Barina Spark and $2200 pricier than a Suzuki Alto.

If considering the Holden or Suzuki on price grounds, may we suggest you save for a bit longer and test-drive the Up before committing?

Another consideration – especially if buying one of these as a first car for the offspring – is safety, and all the aforementioned competitors scored a second-best four stars in Australasian NCAP crash tests, while the Up was awarded the maximum five stars by Euro NCAP crash tests, which Volkswagen is confident will translate into a top score for Australasia.

It also comes as standard with a laser-based system that warns a dopey driver of impending collisions (between 5km/h and 30km/h) and automatically brakes if they don't respond – some insurance companies have enough faith in such systems to offer reduced premiums for cars so equipped.

We have an issue with the lack of standard Bluetooth, which is standard on the cheaper Micra, but adding $500 Maps and More system remedies that while also including sat-nav, audio streaming, MP3 storage and other functions into a funky tablet-style detachable dash-top module that has attractive graphics and performs well.

A USB socket for MP3 players requires a dealer-fit audio system upgrade, although the standard six-speaker CD/radio unit does come with an auxiliary input jack.

Those used to the cocooning, soft-touch surfaces of other modern Volkswagens will find the Up spartan, with hard plastics and areas of bare body-coloured metal.

That said, the ambience is lifted by a glossy plastic dashboard fascia, the seats are comfortable and everything feels solid, hard-wearing and well screwed together in the Volkswagen way.

We were impressed by the rear legroom. The Up seems to defy science, like Doctor Who's Tardis, by being comfortable enough for two six-footers to sit in tandem, with plenty of headroom too.

The rear side windows of a five-door have a strange outward-opening mechanism that allows a few centimetres for ventilation, rather than the traditional wind-down system. We have seen this on three-door cars but never a five-door – it must be a weight or cost-saving measure (or both).

There's also enough boot space for a couple to carry their week's grocery shop or luggage for a long weekend, while the rear seats easily folded flat to provide room for larger loads. A miraculous feat of packaging.

Storage in the cockpit includes a generous glove compartment, a couple of cup-holders and door bins that can take water bottles, while shallow recesses at each end of the rear seat can hold drinks for passengers in the back.

The steering wheel adjusts only for height, but so does the seat, meaning we were able to quickly find a comfortable driving position.

Using the stylish gloss white key to start the little 1.0-litre, three-cylinder engine and set our short journey through inner-city and suburban Melbourne, we were pleased to find the five-speed manual transmission to be a slick, easy-to-use unit that is complemented by a light clutch pedal.

The 55kW/95Nm engine is no firecracker and makes its way through revs at a leisurely pace while not being especially refined under acceleration – but it suits the lightweight 880kg Up and provides adequate propulsion around town.

At idle the engine causes the car to vibrate gently and the dashboard display that suggests the most efficient gear to drive in is a bit ambitious, resulting in the three-pot under the bonnet feeling as though it is labouring by emitting a spluttery, wheezy note.

Most hills require a down-change to access high revs, at which point the engine sound takes on a sporty, hard-edged growl. It might seem like we are complaining about the engine's audible outputs but in truth we found it endearingly characterful.

Volkswagen claims the Up will consume 4.9 litres of premium unleaded per 100 kilometres and after our journey across Melbourne and around the outskirts, the fuel usage readout of the Maps and More system said we had averaged 5.1L/100km despite regularly using the full rev spectrum and tackling hilly terrain.

The Up will happily cruise at 110km/h on the freeway too, and even with the engine spinning away at more than 3000rpm in fifth gear at these speeds, it gets quietly on with the job, while road noise remains at acceptable levels and the main external sound is from the wind.

Those regularly tackling country roads or freeways could do worse than specify the $600 cruise control, which comes packaged with rear parking sensors for round-town use and a trip computer display in the instrument panel.

A confidence-inspiring feeling of high-speed stability shows the Up to be ahead of the game for its size, while at lower speeds small bumps and ripples are soaked up well, but the Up struggles with larger potholes or undulations, slamming across them and sometimes losing composure if encountered mid-bend.

We liked the accurate, well-weighted steering, although the strangely flat-bottomed steering wheel seemed a bit large and although the Up does not feel as zingy or nippy as some light cars around town, it is still fun to hurtle across roundabouts and reasonably agile on bendy roads.

In comparison with its direct competitors, the Up feels respectably grown-up, yet has bags more character than a lot of its ruthlessly efficient showroom siblings.

Bringing the price of a brand-new VW down to this level, especially one so spacious and user-friendly, means that for the first time in many years a Volkswagen truly lives up to its name – people's car.