By Michael Shields, European Auto Correspondent
MUNICH, Germany, June 24 (Reuters) - BMW is betting that small is beautiful by launching the new 1-series luxury compact car in a bid to capture a younger audience with an eye for prestigious brands and money to spend.
Scaled down but not downscale, the 1-series goes on sale in September as the German auto maker's first entry into the compact car market -- the biggest in the industry with around 12 million vehicles a year moving out of showrooms.
But only around six percent of compact cars are classified as premium, a notch above the sea of plain-vanilla hatchbacks and sedans.
The premium segment is growing faster than the overall market, and BMW aims to take advantage of that growth potential by projecting its luxury image onto an auto smaller than its current fleet of sleek and muscular cars.
"You can see with your naked eye that this is a BMW," the company's head of sales and marketing, Michael Ganal, said when presenting the car to reporters on Wednesday night, insisting that BMW had not departed from its successful focus on luxury.
BMW sees the 1-series as fitting nicely between its 3-series cars and its tiny Mini, with which it targets lifestyle-conscious consumers who want a car with personality.
The 1-series costs 19,800 euros ($23,890) for the basic 116i model with a 115-horse-power petrol motor -- some 800 euros more than a similarly powered Golf -- but the addition of air conditioning, alloy wheels or a navigation system can easily boost the price.
Ganal said the 1-series would lower the average age of BMW customers, which he put at "clearly under 50" for the BMW brand and "clearly under 40" for Mini drivers.
LIFESTYLE AWARENESS
"The car is well positioned and there will be a class of buyers for it. It will certainly boost competition in the upper end of the compact car segment," Michael Raab, an auto analyst at Bank Sal. Oppenheim in Frankfurt.
"It is a nice second car for a lifestyle-conscious family. It is certainly a nice car for a lifestyle-aware single who wants a compact car but a beautiful one," Raab said.
By testing the upper end of the compact car segment, BMW will compete against Volkswagen AG unit Audi's A3, a well-equipped VW Golf, Fiat division Alfa Romeo's 147 model and the Mercedes-Benz A class.
It may end up robbing some sales from the compact version of its 3-series sister, Raab said, but he suggested the Mini was different enough not to be a rival in consumers' eyes.
BMW expects to sell around 100,000 of the 1-series next year. It sold 1.1 million cars overall last year and wants to boost this figure to 1.4 million by 2008.
Initial reviews of the 1-series hatchback in the automotive press have been generally positive, praising its classic BMW sculpted looks and good handling thanks to even weight distribution. It is the only compact with rear-wheel drive.
But some complain it is cramped in the back seat, and car critic Jeremy Clarkson, writing in the Sunday Times, called it "monumentally ugly -- as much of an eyesore as the 1960s fire station in a mellow yellow Cotswold town".
To hit its youthful target audience, BMW's "The Principle of Joy" advertising campaign complements traditional print and television spots with pitches via the Internet, multimedia mobile phones and personal digital assistants.
One market it is not targeting is the United States, where buyers traditionally want cars with more power and room than the 1-series offers. But BMW officials say a bigger and stronger version should hit the U.S. market within five years.