There may have been some sharp intaking of breath among Volvo dealers when they learned that the 1.8-litre version of the new S40 would not be part of the initial delivery. The previous S40 1.8 had, after all, been the most popular model in the range.But perhaps Volvo itself wasn't too concerned. The company's attitude towards previously faithful buyers occasionally seems to be verging on the cavalier - what's needed now is a new type of buyer altogether, and if the previous lot don't appreciate some of the innovations that have been brought in, well, so be it.Whatever the final truth of all that, the new 1.8 is here now. In S form (as opposed to the more luxurious SE, which is more than £2000 higher in price) it costs £15,435, or at least it does before you start nosing around the various option packs which include Winter, Bi-Xenon, Family, Convenience and Communications. It's therefore the cheapest Volvo, and of course also the smallest, considerably more petite in real life than it appears in photographs.Size matters, I'm led to believe, and to Volvo it obviously matters a great deal. The V50, which is effectively the estate version of this car, is being marketed as a rival to the BMW 3-Series Touring and the Audi A4 Avant. The S40, rather oddly considering it takes up a very similar amount of road space, is aimed at a different class of opposition altogether, the principal targets being the Mercedes-Benz A-Class and the forthcoming BMW 1-Series.When this is explained by Volvo's marketing people it all seems to make sense, though I have a little difficulty in believing that many potential customers will actually think of the S40 in those terms. They're more likely to be impressed by the claim that this is a high-quality car available for a relatively low price, which I reckon sums it up quite well.If you're unconvinced, even when standing looking at one, that the S40 is really that small, final confirmation comes when you step inside. Not in the front, though - there's a decent amount of room there, and it's all nicely laid out and attractively if unadventurously styled.The most notable design feature is the metallic centre console, a thin flat sheet which joins the fascia to the centre tunnel and contains many of the minor controls. It looks pretty neat, but it also makes access to the oddments compartment right behind it very difficult. A sticker saying "Warning! Bruised Wrists Possible" would seem appropriate here.But if there's room to stretch your legs in the front, there most certainly isn't in the back. As medium-sized saloon cars go, this one is very cramped for rear-seat passengers, and although there's an indent in the front seats to give extra kneeroom, that's not much use if your knees are too high up to make use of it. This is one of the S40's least effective points, and it suggests that the Volvo people, being used to designing large cars, have gone about the job by making a large car smaller rather than creating a small car from scratch.There's a similar feeling behind the wheel. I've never yet driven a Volvo that felt especially nimble, and despite its compactness this one doesn't either. To begin with it definitely feels a size larger than it actually is. It turns out, though, that initial impressions aren't very helpful in this case. On fast, winding roads the S40 grips very well, with not a hint of a slide at either end at any speed I was prepared to attempt, and the turn-in is pleasantly sharp.All this is far more the case with the 1.8 than any other current S40/V50 I've tried so far, and it looks like this is yet another example of the base model in the range being the most fun to drive.Don't be too concerned about the small engine capacity, either. This may be the least powerful car in the range (including the two-litre turbo diesel) but it still produces 125bhp. That's enough to make it perform quite smartly in a straight line and give a good balance between power and handling.Ride quality is quite good, but Volvo is going down the low-profile tyre route with the S40/V50, and more bumps are transmitted through the rubber than the compliant but well-controlled suspension would lead you to expect. It's fine on smooth roads but a minor irritant on less than ideal surfaces, though here again the 1.8 is better compromised than more expensive models in the range. Engine 1798cc, 4 cylinders Power 125bhp Fuel/CO2 39.2mpg / 172g/km Acceleration 0-62mph: 10.9 seconds Top speed 124mph Price £15,435 Release date 15/05/2010