The name "Tercel" derives from the Latin word for "one third" as the Tercel was slightly smaller than the Corolla — much the way "tiercel" refers to a male falcon, which is one-third smaller than its female counterpart.
The Tercel was introduced in Japan in 1978, and in the United States in 1980; it was the first front-wheel drive vehicle ever produced by the automaker. Toyota named it the Corolla Tercel, hoping that the Corolla image — long known for quality and durability — would bring buyers to the new model. The Tercel's front-wheel drive design ensured that the vehicle delivered maximum interior space in a small package. It was originally sold as either a two-door coupe or a three-door hatchback, with each model powered by a 1.5L SOHC four-cylinder engine producing 60hp (45kW). Transmission choices were either a four- or five-speed manual or a three-speed automatic.
The new front-wheel drive design in the Tercel, unlike their previous front-wheel drive designs, did not have the engine transversely mounted. Rather, the engine was mounted longitudinally, such that the transmission was mounted under the floorpan, as was standard in a rear-wheel drive car. Unlike a rear-wheel drive car, the transmission had a ring and pinion gear on the front part of the transmission, underneath the engine. Halfshafts then extended from the transmission to the front wheels.