Unless you're going to be in Panama City full-time, a sedan is out of the question. You need an SUV with 4-wheel drive in order to navigate the bumpy beach roads and the crazy-steep mountain roads. The Toyota Land Cruiser Prado pictured in this post is a typical nice SUV.
Although I've been to Panama several times, today was my first day behind the wheel... of a big SUV... with a manual transmission. It's a good thing no one was in the vehicle with me because I'm sure I would have flunked Panama Driving 101. This was a valuable lesson. Even though I've resigned myself to getting a 4-wheel drive SUV (which I would never drive in the U.S.), I now know that I have to have an automatic transmission. Period. End of subject. My sanity depends on it.
After stalling six times and narrowly escaping certain death once, I ended up at Felipe Motta Wine Store. Felipe Motta has the best selection of wine I've found in Panama, although it leaves a lot to be desired for the serious wine connoisseur. (Felipe, if you read this, please contact me. As a former wine professional, I want to give you my input free of charge!)
After purchasing a few bottles of wine as my reward for driving in Panama, I was back in the SUV tank making my way down the bumpy road, going the wrong way to get into the gated community, and being unable to park the big 'ol tank properly in the itsy-bitsy parking space. But it got home without a scratch and I can now say I've driven in Panama. When you come down to visit and ask, "What's it like to drive in Panama?" my answer will be, "Piece of cake... as long as you drive an automatic."