My wife bought this car in 1991 from a Toyota dealer (a trade-in) with 13,000 miles. I "inherited" the car when we met in 1995. This was my first experience with an import econo-box, as I had always driven a V8 domestic "sport coupe" or heavy-duty pickup previously.
The car is fairly economical, although in city/town driving, it doesn't even approach 30 MPG, let alone 40 MPG. I'd characterize the engine as a strong-runner, although at 1.5L, you don't get much pick-up from the 4-cylinder. Sure, you can run this car at 75 MPH down the interstate, but try to pass or go up hill and you'll be down-shifting through 4th to 3rd fairly quickly.
One thing to keep in mind is that the 4-cylinder works hard, so it must be maintained religiously. I change oil every 1500 miles, although the car doesn't take a drop of oil, even at 130K miles.
Watch your fluid levels as well, as this model and year tends to need periodic topping off in the radiator.
In general, keep good service records and check your belts on a regular basis. I have been baffled by the way this car goes through alternators, and can speak from experience that you're better off to go with re-manufactured rather than rebuilt alternators.
All the previous comments regarding carbon build-up are dead-on. From 56,000 miles on, we have used exclusively high-test gas in the car (typically Sunoco Ultra 94) to reduce carbon build-up and eliminate engine knock and run-on. I'd also recommend split-fire or similar high-performance plugs, as I experienced some plug fouling between tune-ups.
I am slightly puzzled as to why this model seems to go through mufflers so quickly. In part, this can be attributed to a number of short trips, which fail to eliminate moisture condensation internal to the muffler, and it corrodes from the inside out. Regular (weekly or every other weeks) highway driving is useful as well.
I think one weakness of the Tercel is rather spongy braking, which shouldn't happen with such a light vehicle. Brake life is good, but car certainly won't stop on a dime.
My biggest complaint with the car is that the engine is not easy to work on, many of the plastic parts have to be treated with kid gloves or they'll snap, and replacement parts are expensive. The $800 carburetor (no rebuild on this year and model) was a shocker to me, and caused me to stop complaining about the $28 air filter.
I'll give the car an A+ for handling, though. Coupled with a good set of Michelins, this car grips the road amazingly well. Corners and moves through curves like a dream. The comment about handling like it is on rails is accurate.
This car has been an every-day driver since acquired, although many of the miles have been "in-town" driving. The car has been maintained religiously and driven reasonably; the only "abuse" has come from overloading the trunk once or twice with mulch and top soil. In its earlier years, the car was economical all-around, but as with any old car, it requires more service with age, and at 11 years of driving in upstate NY, it is scheduled to go in for body work this summer, replacing quarter panels that show rust around the wheel wells.
I like the car, especially the 5-speed transmission (wouldn't want an automatic), but the expense of replacement parts is a bit frustrating. A good-running car, but not the necessarily the cheapest unless you do much of the work yourself. You might beat some cars off the line at a green light, but only if they are driven by senior citizens.
A final plus is that insurance for this make and model are extremely affordable.