In theory it made sense. In reality it looked lousy.
You've got to give long gone automaker AMC credit here for daring to be different. It did the same with the Pacer just a few years after the Gremlin was launched, but it was the latter that was the first to take on economy car imports. AMC first came up with the concept for the Gremlin in the late 1960s, believing that Americans were more open than ever to buying fuel efficient subcompact imports such as the VW Beetle and Toyota Corona. What AMC didn't know and couldn't predict was the upcoming oil crisis.
Originally the idea was to base the Gremlin off the Javelin's platform and cut the rear end off. But using the pony car base was ditched when AMC learned that Ford and Chevy were working on subcompacts of their own, the Pinto and Vega respectively. Instead the Gremlin used the Hornet as a base, shortening the wheelbase and length. The result may just have been the first American hatchback. Power, as you've rightly suspected, was only mediocre at best. A 3.3-liter inline-six with 128 horsepower came standard. In the years that followed a 5.0-liter V8 became optional, but only produced 150 hp. Some even called this the "poor man's Corvette." Still, the Gremlin sold very well during its time despite its outright butt-less appearance.