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Since the 1970s cars have slowly improved mileage (Except for the SUV craze of the late 1990s till about 2006). The Companies did this by doing the following:
1. Reduce weight, The steel in Cars became thinner, Engines became lighter, Transmissions became lighter. Internal volume did not change but the huge land yachts of the early 1970s lost almost a 1/3 of their external size and this vastly improved millage. Plastics came into use as an effort to reduce overall body weight and thus help fuel economy
2. Smaller engines, Transmissions etc. Now this is related to the reduction in weight, less weight, the smaller the engine is needed to move the car (and the smaller the engine the smaller and lighter the transmission can be).
3. Turbo Charging and other improvements in performance of Smaller engines. Turbo chargers vastly improved performance of an engine, without a significant gain in weight. Electrical controls replacing the Carburetors and points improve fuel economy by making the engine efficient. Computer controlled fuel system improved performance of smaller engines so smaller (and lighter) engines could do the job larger engines did in the past.
Notice the one area where Car makers did NOT go (Except for the period of the late 1970s, when gasoline prices were high) was to cut performance. The cars of today can do speeds equal to and exceeding the cars of the late 1970s (But NOT the 1960s with their 350 Plus Cubic Inch engines, and even 454 cubic inch engines). The reason for this was car makers started to make smaller cars with even smaller engines in the late 1970s, performance suffered but then the above improvements started to kick in and performance started to improve in the 1980s.
The biggest problem since the 1980s has been most of the easy ways to improve mileage while maintaining something close to the performance of the 1960s have been done. The move to smaller cars did most of the improvements in Corporate fleet average in the 1980s and 1990 (along with improvements in electrical controls of the fuel system). What the car makers have hit since the 1990s is a brick wall, that has to be worked around (The brick wall is the inherent cost of using an internal combustion engine, you use so much power such to move the engine let alone the rest of the car).
The only way left to improve mileage of the internal combustion engine, is to make it smaller AND to operate it less. This is how both Toyota and its Prius AND how VW and its Lupo addressed the problem of how to improve the fuel economy of the internal combustions engine.
Right now, Toyota seems to have won the bet, it put a small engine in a mid size car, but then used that engine NOT as a direct propulsion of the car, but as an electric generator. The Generator then does two things, first provide to the electric motors that propel the wheels, with any excess power being stored in batteries. When the batteries are full, the engine cut off and the car is propelled by the batteries till they are almost empty OR extra power is needed (i.e. to accelerate the car). This improves mileage by cutting back usage of the engine, if the engine is NOT is use, no gasoline is being consumed. The downside of such hybrids are that they have two engines (One electric, one gasoline) instead of just one for a conventional car (Through the Hybrids saves weight do to the fact it does NOT need a transmission or drive train, the electric motors can be attached directly to the wheel and connected to the generator or battery by electrical cables. This combination system is expensive and some people estimate a 30 year repayment period compared to a three year re-payment on a conventional system.
VW took the other option in the form of the Lupo. The design was for a smaller engine but in a smaller car with less performance. While the Prius can do what most other cars can do, the Lupo (Never sold in the US) never was intended for high speed operations (and by high speed I mean over 40 mph). The engine, like the Prius cuts off when NOT needed, but does NOT operate as a generator, it just shuts off and the cars coasts. Manual Steering and non-powered brakes were standard with the Lupo (Neither needed power from the engine to operate). When you can to a stop the engine would cut off, and start backup when you touched the gas pedal. Notice performance was reduced, but fuel economy actually exceeded the Prius but since the Lupo was NEVER sold in the US, Prius could claim best fuel economy in US ads.
Now, while it looks like the Prius is the winner, but the Lupo may be the winner in the long run. The reason is simple, it is not much more expensive then a conventional car and exceeds the Prius in Fuel economy. The thing holding the Lupo back is it is NOT design for speeds over 40 mph. For most people that is enough 90% of the time (Through convincing people that is the case if a different story, people like speed). One of the problem when it comes to testing "City Cars" is the EPA test assumes 50 mph and the present generation of City Cars can get up to 50 mph, but by overreving the engine, thus killing fuel economy (Thus the Lupo EPA Fuel mileage will be less then actual usage if speeds are kept low). On the other hand the Prius gets better mileage on the EPA test then people get in real life, do to the fact it is geared to 50 mph for maximum fuel economy, but people who by it, like most other car drivers, go faster (And speed kills fuel economy, the heavier the car and the faster it goes the more energy is needed to propel it forward).
I foresee the Lupo type car winning out in the long run, but people will have to accept its lower performance. People will object to such lower performance, but will buy it once gasoline goes through the roof (Which probably will NOT occur for a few more years). At present the Prius is winning, but historically it is the poor that opts for better fuel economy first, and at present they can NOT afford a Prius. IT is such poor people, willing to accept slower speeds just to get to work that will propel the Lupo Type City Car to Victory, but it will be a long drawn out fight before the City Cars beat out the Prius.
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