The second generation Toledo (Typ 1M) was introduced in 1998 and made its début at the 1998 Paris Motor Show as a four-door notchback sedan.
It was more rounded than the previous first generation shape and had a much more fluid design, although both were products of Giorgetto Giugiaro's Italdesign studio with the latest generation being influenced by SEAT's chief of exterior design Steve Lewis.
It shared components with both its Volkswagen and Škoda PQ34 platform-mates - the Volkswagen Bora and the Škoda Octavia - yet is the sportiest of the three. In the interior, the dashboard was derived from that of the first-generation Audi A3.
It was built on the Volkswagen Golf Mk4 platform, which meant stiff springs to support the load of the large 500 litre boot increased to 830 litres when folding rear seats. The early models were built at the Volkswagen/Audi plant in Belgium, with improved build quality (compared to the Spanish-built previous generation), although the Toledo was still presented as an economic alternative to the lower level of the D segment, and included in the basic price a high level of equipment. One of the features most associated with the Spanish model, the tailgate was removed in favour of a more traditional saloon boot opening. The following year, the Toledo would be used as the base for a proper hatchback, the SEAT León Mk1.
Base model was now a crossflow 1.6 litre 100 PS (74 kW; 99 bhp) petrol engine, followed by a 1.8 litre 20-valve 125 PS (92 kW; 123 bhp) unit, while the top of the line was represented by the 2.3 litre 150 PS (110 kW; 148 bhp) VR5 engine (V5). Diesel engined versions used the 1.9 Turbocharged Direct Injection (TDI) engine, with a variable geometry turbocharger, offered initially with power outputs of 90 PS (66 kW; 89 bhp) or 110 PS (81 kW; 108 bhp). In 2001, the V5 engine was uprated with a 20v head (four valves per cylinder), boosting power to 170 PS (125 kW; 168 bhp). Later in the series, the 1.8 litre 20-valve Toledo received a turbocharger, capable of delivering 180 PS (132 kW; 178 bhp), and a later evolution of the VW TDI engine, produced engines of 130 PS (96 kW; 128 bhp) and 150 PS (110 kW; 148 bhp). These three versions all featured a six-speed manual transmission. The 130 PS TDI also featured white dials instead of the standard black dials on the 110 and 150 PS TDI models.
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