When the 2013 Toyota RAV4 goes on sale next month, it will enter a segment with more than 20 models, including luxury makes. The one that counts, however, is the Honda CR-V, which has held the position of compact crossover volume leader for at least a year. That said, the new RAV4 is far from an overdone and panicked effort.

The engine is the same 2.5-liter four-cylinder from the third-gen RAV4. Power is rated at 176 hp and 172 lb-ft of torque, a drop of 3 horses. Still, the RAV should run neck and neck with much of the competition -- unless, of course, the guy next to you at a stoplight is in a Ford Escape with a 240-hp, 2.0-liter EcoBoost I-4 or a 264-hp Chevy Equinox V-6. Unfortunately Toyota's potent 268-hp, 3.5-liter V-6, which was an option in the outgoing RAV, doesn't carry over for the new model. Toyota gave me two reasons for this. First, sales of the V-6 peaked at 30 percent, but have dropped to 15 percent today. Second, if Honda can sell more than 200,000 CR-Vs with just one engine choice, Toyota can do the same with the RAV4. Speaking of, Toyota has set an annual sales goal of at least 200,000 units for 2013 -- a strong growth target given that 2012 RAV4 sales will likely total around 175K.

In better news, Toyota finally ditched the antiquated four-speed automatic for a new six-speed gearbox with the ability to shift manually via the gearshift. The new powertrain combo isn't noticeably peppier off the line, but shifts are dramatically smoother, exhibiting none of the extreme jumps in engine RPMs experienced with the four-speed. Additionally, the six-speed's tall overdrive gears, revised software, and new torque converter all help improve fuel economy. Official EPA numbers aren't out yet, but Toyota says a front-drive model should return 31 mpg on the highway, which is right in line with the competition.

The transmission features three modes: ECO, Normal, and Sport. ECO mode is obviously the least fun, since it softens throttle response and is constantly hunting for sixth gear. (It also regulates the A/C unit.) Sport mode, on the other hand, sharpens throttle response, increases shift speeds, and hold gears longer. But wait, there's more: Sport mode also reduces the steering's electric power assist by 20 percent and alters Toyota's new Dynamic Torque Control system in all-wheel drive models. (More on that later.)

The combination of the updated powertrain and revised suspension (beefier stabilizer bars, revised spring and damping rates, and tweaked struts and bushings) results in a RAV4 that is much more fun to drive than the outgoing model. Steering is nicely weighted and fairly precise, while the body is much more composed through the twisties. Handling gets even better on models equipped with the all-wheel drive system with Dynamic Torque Control. The front wheels do all the work in most situations, but Sport mode will help reduce understeer through the turns by sending up to 10 percent of the engine power to the rear wheels via an electromagnetically controlled coupling (and up to a 50 percent rear bias when the roads get slippery). The assist is very subtle, but the AWD RAV4 does seem a bit more composed through fast turns than the front-drive models.

In addition to improved handling, Toyota sharpened the RAV4's styling. The quirky side-hinged rear door makes way for a conventional lift tailgate, and the spare tire moves from the exterior to under the cargo area. Toyota says triathletes inspired the styling, but one staffer said the front end reminded him of an Angry Bird. The interior is less polarizing and looks especially upscale in XLE and Limited models, where the dash panel is finished in soft-touch material with French stitching. The faux-metallic accent pieces and chrome-trimmed switchgear add to the premium feel, and the ergonomics have improved slightly.

The interior is also quieter compared to the outgoing RAV, thanks to a new acoustic laminated windshield and additional sound-deadening material. Particularly noticeable is the reduction in wind noise around the A pillar. Passenger space isn't significantly different, save for rear hip room, which shrinks by 3.5 inches. However, Toyota points out that the RAV4 provides a class-leading 73.4 cubic feet of cargo space when the rear seats are folded down, a task completed with a simple lift of a handle on the bottom of the cushion.

Toyota has simplified the RAV4 lineup with three trim levels: LE, XLE, and Limited. Standard on all RAV4s is Toyota's first one-touch three-blinker system, streaming Bluetooth audio, class-leading eight airbags, 6.1-inch touch-screen infotainment display, and backup camera. The Limited model includes exclusive features including Softex seating surfaces (leather is no longer available), which Toyota says is more durable and breathable. In addition to Softex, the Limited model gets a standard power liftgate, an optional navigation system with JBL audio, and an optional blind-spot monitoring system with Rear Cross Traffic Alert.

Pricing starts at $24,145 (including $845 destination fee) for the base front-drive LE model, making it slightly more expensive than the base CR-V and Ford Escape, which cost $23,625 and $23,295, respectively. The XLE starts at $25,135, while opting for the Limited will require $27,855. The AWD system, which Toyota says should make up two-thirds of total RAV4 sales, runs an extra $1400 on all trims.

In all, the refreshed RAV4 has just enough to compete in the segment it helped pioneer, and dealers shouldn't have any issues moving plenty of units off the lot. Look for the 2013 RAV4 in dealerships in January, with our next compact crossover comparo to follow sometime in 2013.

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