I would consider doing this to a 9th gen 5spd. It should get better FE than 10th gen and at ~2600lbs, the 1.5L shouldn't have too much trouble pushing it around. I wouldn't think it would be too expensive, especially since I can sell the 1ZZ.
For a highway commuter, this car would be better than a Prius. The electrics do very little on the highway, and just add up to dead weight. I think 50 MPG should be possible without resorting to aero mods. City mileage, though not as good as the Prius, should still be very respectable.
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Umm Horsepower / displacement / large size is "Required" in America/ No Markert in USA for small low power cars.
That's the standard excuse I hear.
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Do you believe it? I do. I wouldn't think it would cost Toyota a hell of a lot to offer the 1.5L as an option. The motor is already stateside legal. I think they're afraid a 1.5L Corolla would cut into Prius sales.
Also, a lot of manufacturer's have this idea that just because we want a nice car, we're willing to shell out for gas. For example, the BMW 318/i/is/ti didn't meet its death in 1999, BMW just stopped bringing it to the states. Is a well built, comfortable interior and respectable fuel economy mutually exclusive? Or would good fuel economy turn BMW into a "poser" brand because people who blew 60K on an M3 don't want their car to look like something that can get 35mpg? You know, kind of how V6 Mustangs with dual pipe kits piss off GT owners.