General Motors CEO Rick Wagoner revealed a full-size foam model of the new Chevrolet Cruze last week. GM announced that it would invest $500 million to build the all-new global compact car that will replace the Chevy Cobalt in the United States. The automaker calls it “the first of an all-new generation of fuel-efficient small cars.”

Slightly smaller than the Cobalt, the Cruze could become the carmaker’s fiercest competitor for car shoppers looking to save money at the pump. “We expect the Cruze to have segment-leading fuel economy,” a company spokesperson told the Associated Press. “It will significantly exceed the Cobalt XFE’s numbers.” The Cobalt XFE has been one of Chevy’s top all-around sellers, offering fuel economy of 25 in the city and 37 on the highway—with a combined mileage of about 32 miles per gallon.

Though no official mpg figures have been released for the Cruze, industry insiders are expecting combined fuel economy to approach or even exceed 40 miles per gallon. If this is the case, Chevrolet may have a viable alternative to high-mileage hybrid cars from Toyota and Honda.

Abroad, the Cruze will be outfitted with a choice of 1.6- and 1.8-liter gasoline engines, and a 2.0-liter turbo diesel. In the US, it will be powered by a turbocharged version of the 1.4-liter engine, also to be used in the Chevrolet Volt plug-in hybrid. The key to the Cruze’s efficiency is its compact powertrain and lightweight architecture.

GM is aiming for mass appeal with the Cruze’s visual design: wraparound headlights, a two-tier grille and front wing lines—features that are becoming part of “the design language for future GM models,” according to the company.

A concept prototype of the Cruze will debut at the Paris Auto Show this October, with product launches planned for Europe and Asia some time next year. In the US, it will be built at GM’s Lordstown, Ohio plant, and will arrive in showrooms in mid-2010 as a 2011 model.