PARIS – Continuing its move down market, BMW AG uses the auto show here for the official world debut of its 1-Series compact car.

“This car is a major milestone in the expansion of the BMW Group,” says BMW Chairman Helmut Panke. “So it is fair to say that the BMW 1-Series marks the re-entry of the BMW brand into the compact class. We are back.”

Panke says BMW is making the move into the segment because “the compact class is now the largest single market segment for cars worldwide, amounting to some 12 million units a year.

“And this segment will be growing by approximately 20% up to the year 2010,” he adds. “Moreover, the premium segment in the compact class will grow over-proportionally, expanding by 2010 by almost 50%.”

BMW’s new 1-Series hatchback.

The 1-Series is entering the market with four engine variants – including diesel and gasoline offerings – ranging from 115-hp to 163-hp and a 6-speed manual or automatic gearbox. BMW’s controversial iDrive control concept and Bluetooth mobile phone interface are among the car’s options. Run-flat tires are standard as well as 2-stage brake lights.

“We see a good potential for winning over new and, in particular, younger target groups with the BMW 1-Series,” Panke says. “Above all, we are looking at young people successful in their careers right from the start and with a correspondingly large purchasing potential. Particularly customers of this kind show growing demand for versatile, sophisticated and sporting cars – cars which quite simply stand out from the rest.”

Sales of the new 1-Series have been under way in Europe and Asia for the past few days, and Panke says BMW will market a variant of the car in the U.S. beginning in 2007. The U.S. car is expected to be a 4-door sedan version of the new hatchback.

Bowing alongside the 1-Series is the M5 – the most powerful 5-Series ever, cranking out 507 hp from a 5L 10-cyl. engine.

BMW also shows the world’s fastest hydrogen-powered vehicle. The H2R is equipped with a 6L 12-cyl. that develops more than 285 hp. It can accelerate to 62 mph (100 km/h) in approximately six seconds, says Burkhard Goschel, member of the BMW board of management. Top speed is 186 mph (300 km/h). (See related story: BMW Breaks Speed Records With Hydrogen Car)

“This clearly proves that we are able to offer efficient dynamics not only with petrol and diesel engines, but also with hydrogen,” Goschel says. “Our path into the future is hydrogen.”