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Hi,

We are considering upgrading our second car, with a budget of $5 - 8k. The car is used mostly for suburban commuting 40km per day, with only one passenger. We'd really like to decrease our fuel costs but without sacrificing reliability of the vehicle. Your advice would be appreciated.

Thanks.

Depending on how small you are wanting to go, the Toyota Echo (or import Vitz) has a great reputation for reliability and economy. This model is available in 1.0 litre, 1.3 litre or 1.5 litre, with a choice of manual, automatic, 3 door or 5 door, so there's plenty of selection. Probably the 1.3 would be a good option for your needs and requirements.
If you are wanting to go slightly bigger, the Nissan Pulsar and Mazda 323 (or import Familia) are both models that would fall into your price range and have good reputations for reliability.

To add to ABayliss's endorsement of the Echo/Vitz, please see http://rightcar.govt.nz/find.html?keywords=echo&q=

It certainly tested very well with 4 out of 5 stars, even for the 2000 model.
I'd recommend the manual models for better relative fuel economy, although I'm uncertain if the auto is 3 or 4 speed.

Thanks.