The Corolla grew again in its eighth iteration, but it managed to lose some weight and increase its fuel mileage thanks to a new engine and a generally more efficient drivetrain. The big chunk of that weight savings and drivetrain efficiency came in the form of an all-new, all-aluminum 1.8-liter DOHC four-cylinder engine rated at a healthy 120 horsepower — exactly twice what the engine in the first Corolla was rated back in 1968. Fuel economy was improved by 10 percent over the previous generation; with the standard five-speed manual, a Corolla could pull down 31 mpg in the city and 38 on the highway.
Only a sedan was offered this time around, and there were three trim levels — base VE, midlevel CE and highline LE. The VE was stuck with an optional three-speed automatic, while CE and LE buyers qualified for the four-speed unit. Equipment levels were much the same as on the previous generation, though base cars now came with power steering and dual exterior mirrors. ABS remained optional on all models, and there were new extras like side airbags and a CD player.
With its simple yet elegant exterior, and handsome interior, the 1998 Corolla was a mature machine among such adolescent competitors as the Honda Civic and Nissan Sentra. It was also comparatively expensive and short on rear-seat legroom, but sales remained strong, with Toyota putting 248,195 Corollas into customers' garages during 1998. The nearly identical Prizm (now badged as a Chevrolet) continued to be built alongside the Corolla at NUMMI.
Changes for 1999 were minor. The VE model was given a cassette stereo, and the LE now came standard with last year's Touring Package items, including a front stabilizer bar, wider 14-inch tires, a tachometer and various exterior cosmetic enhancements. In 2000, the company added its VVT-i variable valve timing system to the 1.8-liter engine, which boosted output to 125 horsepower, made for a fatter torque curve and allowed the Corolla to achieve low emission vehicle (LEV) status. New front and rear fascias, headlights and taillights appeared in 2001, as did a quasisporty S version of this popular compact. S models came with unique wheel covers, foglights, intermittent wipers and color-keyed moldings, mudguards and grille. Inside, it offered sportier upholstery, a tachometer and a faux leather-wrapped wheel. In sum, the S was more about cosmetic upgrades than actual sport. Meanwhile, the base VE model disappeared — the CE took its place, along with its unloved three-speed automatic. For 2002, the Corolla line was unchanged, though Toyota lowered the prices for the optional value packages.