IN the 1970s and '80s, they used to say Toyota was the car industry's sleeping giant.

Japan's Number One knew how to make cars cheap, reliable and economical, but the part of its corporate brain responsible for style, excitement and dynamics seemed forever dormant.

Fast-forward to today and only a deadbeat would even dare to think such a thing.

For proof drive any 1999 to 2005 Lexus IS200 - preferably one with the slick-shifting six-speed manual - and the sheer might of what a focussed industrial giant like Toyota has since achieved is astounding.

In its bid to beat the BMW 3 Series at its own game, its luxury brand Lexus not only rose to the occasion but set new value-for-money and driver enjoyment boundaries.

Nobody expected the IS200 to be as good - or as much fun - as it was.

BMW's subsequent 2001 E46 3 Series update wasn't sharper and more dynamic for nothing.

And nor did German four-cylinder engines - for aeons merely slow and vociferous reminders of why you should have somehow coughed up tens of thousands of dollars more for the supremely sweeter sixes - suddenly became much better.

Witness BMW's Valvetronic 2.0-litre engine in the hitherto sluggish 318i.

Yep, the spectre of the IS200 must have loomed large in the minds of all rivals. In a nutshell, it kicked Teutonic butt.

Now there's the IS250, the successor to one of the greatest cars Toyota has ever built.

And it's another no-holds-barred lunge at the establishment.

To begin with, it ticks all the old (and ageing) IS' crosses.

Fresher styling? Check. In fact, check out how mean and wedgy the Lexus looks, with its broad hips, flared wheelarches and aggressive snout. The rear could just have easily have come out of the pages of a Manga comic book.

Better space for all in a quieter, more refined and far-classier-looking cabin? Check. Loads more and latest high-tech media, safety and luxury gizmos? Check.

The interior is an especially galling place for rival car-makers to be in, with a dashboard design that is Lexus' best-ever effort. Audi's A4 is set to lose one of the few advantages it's had in this segment.

Only the instrumentation pod shape and liberal use of metallic trim connects the new IS with the old IS cabin. And in true company tradition the dials are stunningly clear and attractive to behold.

High quality materials swathe a stylish and useable interior that's hushed from most - but not all, thankfully - mechanical noise.

The seats seem sumptuously soft and supportive, the premium audio system superb and the ambience suitably smart. Even the least expensive IS250 has the look and feel of a much more expensive car.

Only a feeling of claustrophobia from a couple of shorter-stature occupants during the 150km test route in and around Sydney hit a sour note. That high waistline isn't so great for over-the-shoulder visibility either.

Not that you'll be looking back driving forward in a car as progressive as this.

Compared to the IS200, the IS250 is definitely quicker off the mark and more eager during overtaking manoeuvres.

It's a smooth and willing revver, making the most of all the snappy six speeds available to keep things moving along quickly and silently.

And hallelujah! Here's a 2005 sports sedan that rides with adequate suppleness. Is it a coincidence then that runflat tyres are nowhere to be found ("they are too harsh", retorts IS chief engineer Fukusato)?

Whatever the reason, Audi needs to hire this man for all its next-generation cars as far as ride quality is concerned.

But the new IS' 220kg-plus weight gain has blunted the performance potential it has to offer.

Up winding roads in the six-speed manual model, regular gearshifting and plenty of pedal to the metal mashing was necessary if the car was to be kept hustling along.

Disappointingly, the gear-change lacks the metallic crispness of the old manual IS, with more sanitised and longer throws defining all shifts. The automatic might just be the better bet now.

As most trannies of its ilk, changes in the six-speed auto are swift and smooth, augmented by the sequential shift facility on the floor as well as on the steering column. But unlike most paddles, the Lexus ones feel natural and easily fall to hand.

Fast, tight corners also wake up the latent sports car in this Lexus.

Curves are carved up quickly and with no fuss there appears to be masses of grip for surefooted roadholding and the rear will lighten up just nicely and always controllably if some lunatic traction-off cornering is desired.

During such driving situations the brakes just kept on doing their thing with no sign of fade or slackened pedal pressure.

Varying road surfaces did mean differing degrees of tyre noise intrusion inside the cabin, but the IS250 is still defined by how quiet and refined it is.

This is a Lexus that leaves you wishing you could pile on a few hundred more kilometres even after a long stint at the wheel. It's that good.

For some keener drivers though the sheer immediacy of the IS200's eager dynamics is now missing. The old car always felt raw and ready to ricochet this way or that, so light was it on its feet.

With the latest little Lexus you need to prod it somewhat before it will play with you. But play hard it will.

Considering how grown-up the IS250 feels the rest of the time, this car shows absolute progress for most people.

In fact, for small families, it might be the perfect compact luxury sports family sedan. Even the boot is big enough for most needs.

Only an extended period will reveal if the IS250 is a class leader. On first acquaintances all the signs are extremely promising indeed.

Suddenly, BMW's brilliant 320i Executive has a giant's shadow cast over it.