There is the law of dimishing returns when it comes to reducing fuel consumption. The Corolla is a good sized car (bigger than the Accord and Camry of not that long ago) and consumes about 7.5L/100km in the city and 5.5L/100km on the highway. The Smart has 800cc versus 1800cc in the Corolla, about half the length, but it's fuel consumption is not less than half.
As we narrow the field to the Civic/Corolla/Yaris/Fit and so on, the marginal gains become smaller. However, every bit counts and I think the Smart is an amazing product as it combines excellent fuel economy with minimal materials (creating less energy consumed in the manufacturing and less landfill usage upon disposal) and shows that the microcar segment has potential.
I don't see why the majority of people think they need something that consumes more than 10L/100km. The Accord and Camry are bigger than E-Class cars and not that much smaller than an S-Class. In fact, an Accord is now about the same size as the late 80's S-Class cars, which looked HUGE then.
I noticed some people talking about how anything less than Accord-sized car can't be driven on the highway? Huh? I drove my 1976 Honda Civic across the country. It was barely bigger than a Smart and had only 60hp. That trip included the Alaska Highway fer cryin' out loud.
People cry the blues about gas prices, but there are TONS of economical choices that aren't terribly expensive to buy and offer room, luxury features (our CE Corolla has six airbags, ABS, cruise, power windows, keyless, IPOD connector, AC, AT, and so on) and are light years ahead of cars of not that long ago. That 76 Civic I had was smaller than our current Corolla, had less than 1/2 the HP and stuggles to gt under 10L/100km on the highway. Our Corolla won't consume that much in all city driving!! The Corolla is safer than ANY car made just ten years ago and pollutes less too.
We do need people to abandon their SUV's and gas guzzlers, but they can still have reasonable cars that are safe and offer lots of amenities.