UNLIKE their American counterparts, European carmakers have long been associated with small, compact runarounds like the Fiat 500, Citroen 2CV, Mini Cooper, or more recently the Smart car . That has always made sense. Many roads are narrower and parking spaces pokier in Europe than they are across the Atlantic. And most people rarely drive the vast distances where a bigger car's greater comfort is worth paying for (though, in fairness, nor do most Americans—at least not any more). Now, a consortium of seven firms from Spain's Basque country and the Massachusetts Institute of Technology (MIT) Media Lab have taken this to extremes.

Their prototype of a tiny electric vehicle was unveiled on January 24th by José Manuel Barroso, the president of the European Commssion, who climbed into the car, gave a thumbs-up, and called it a “systematic solution to major societal challenges”. The two-door Hiriko, whose name derives from the Basque word for "city" or "urban", was designed by MIT engineers, but built by Basques. Starting next year, a trial manufacturing run is set to begin at Vitoria Gasteiz, outside Bilbao.

The Hiriko is brimming with sexy gimmicks. It folds upwards when parked, scrunching up to one-third the length of a standard European parking space. Like some compacts models of old, both passenger and driver enter through a folded-out windshield. Its wheels that can turn 90 degrees, to make parallel parking nightmares a thing of the past.

Denokinn, the Basque investment group backing the venture, wants to price the Hiriko at €12,500 ($16,400). The company is planning to flog the cars to cities across Europe looking to expand their car-sharing schemes: so far Berlin, Barcelona and Malmö have expressed interest. The car's limited range of 120km per charge may put off range-anxious individual buyers.

However, although many consumers and cities are looking to save cash (and the planet), supercompact cars have not done nearly as well as their proponents had hoped. Sales of city cars, known is the industry as “A-segment”, have stagnated in the last year, their global sales slumping from 6.2m units in 2010 to about 5.9m in 2011, according to figures from IHS Global Insight, a research outfit. It expects city-car sales to rebound slightly in 2012, to around 6.1m. Smart, a joint project between Germany's Daimler and Swatch, a Swiss watchmaker, has sold under a million units worldwide in the last ten years. And car-sharing schemes, like Zipcar, the largest company, have not warmed to electric vehicles, relying instead on traditional combustion engines, as well as some hybrids.

Tim Urquhart of IHS notes that cars like the Hiriko are low-value, low price "and, therefore, they are low-margin". The Basque start-up has a big hill to climb, one that Daimler and Renault, its French rival, have been struggling up for some time.