MENLO PARK, CA – Audi of America believes it has found the fourth leg to its model-lineup stool with its long-awaited all-new A3 small car, arriving at U.S. showrooms this spring.

It took Audi nearly a year after the debut of the A3 Sportback to chisel out a 4-door notchback for the U.S. market. But the launch comes just in time for the brand to go head-to-head with the new Mercedes CLA sedan and BMW 2-Series coupe, as the German marques kick the drive down market into second gear in an effort to capture a growing number of budget-minded buyers with a penchant for luxury-brand labels.

The new A3 sits on parent Volkswagen’s proliferating MQB platform, which underpins the reborn VW Golf that also arrives in the U.S. this year. Power comes from VW’s turbocharged EA888 4-cyl. engine family and includes the base 170-hp 1.8L and optional 220-hp 2.0L, both partial-zero-emissions certified and linked to Audi’s 6-speed dual-clutch automatic transmission.

The sedan, which replaces the outgoing A3 5-door, is the first in a string of seven A3 variants to come that will include a drop-top cabriolet, limited availability of the Sportback model and a performance S version, all due in the fourth quarter, plus the long-awaited Q3 CUV slated to make its U.S. debut in August or September.

In all, there will be five unique powertrains offered, including a plug-in electric hybrid, a 2.0L TDI diesel due in the fall and high-output version of the 2.0L TFSI gasoline engine, rated at 290 hp in Euro-spec form, for the performance S model.

The Sportback, which won’t join the lineup until 2015, will be offered initially only with the plug-in hybrid powertrain that mates a 1.4L turbocharged gasoline engine with a 75-kW (101-hp) electric motor, fueled by lithium-ion batteries. But Audi of America President Scott Keogh hints other engines may be offered with the U.S.-spec Sportback down the road.

For now the A3 hits the market as a sedan only, starting fairly well equipped at $29,900. Standard features include a 10-speaker sound system with HD Radio and a 90-day SiriusXM subscription, an SD-card slot with 32GB capacity, cruise control, rain-sensing wipers, automatic headlamps and Audi’s Pre-Sense basic package that detects when an emergency maneuver is being made and prepares the occupant-restraint systems for a possible collision. Stepping up to the 2.0L engine pushes the base price to $32,900.

Options include a navigation system with Audi’s MMI controller and touchpad handwriting system, a 705-watt Bang & Olufsen sound system with 14 speakers, keyless ignition and adaptive cruise control.

Also optional is Audi’s first 4G LTE data connection, provided in partnership with AT&T. The Wi-Fi hotspot can be had for $99 for a 6-month/5GB plan or $499 for a 30-month/30GB subscription.

Widespread Market Appeal Expected

Although the A3 will carry the brand’s lowest base price in the U.S., Audi says the car will draw more than entry-level buyers.

“A lot of people make the mistake in thinking this is a Gen Y car (only),” Keogh says. “But this will draw a lot of buyers. This is not just a young person’s car.”

He predicts average transaction prices will range at $32,000-$33,000 for the 1.8L model and about $35,000 for the 2.0L version.

The emerging entry-level premium-car market (A-/B-class models), which is expected to triple the number of model entries over the next five years, will balloon to 350,000-360,000 vehicles per year by 2020, up 294% from 88,904 units in 2013, Audi says. The sector is expected to account for 57% of the growth in the luxury-vehicle market overall by the end of the decade.

“This will be where the action is,” Keogh says, adding once Audi has its full lineup of A3 models, sales should range from 35,000-40,000 units per year in the U.S.

“This will be the fourth big-volume segment for us,” he says, pointing to the A4 lineup, higher-end A6-A7-A8 trio and the Q5 CUV, which all sell more than 30,000 units annually.

Audi is kicking off sales of the A3 with a new 60-second television ad campaign called “Dues” and starring comedian Ricky Gervais and other notable celebrities that positions the A3 as an uncompromising choice for new-car buyers.

The A3 is part of a bigger product push the German luxury brand is making that will see $30 billion invested in new models between now and 2018. That includes a freshened A8 sedan at the top of the lineup, plus a plug-in S8, both due in the U.S. this summer. The all-new TT, which bowed earlier this month at the Geneva auto show, arrives in 2015, and the automaker is expected to unveil its revamped A4 model at the Paris auto show this fall.

Audi posted 2013 revenues of $69.2 billion on sales of 1.57 million vehicles worldwide. Its $6.9 billion in profit represents a 10.1% margin, Keogh says, “making us one of the most profitable auto companies out there.”

It also continues to gain ground in the U.S., he notes, where sales are expected to top last year’s record 158,061 units and are ahead of the pace needed to hit Audi’s 200,000-unit target for 2020.

“I’m confident we’re going to get there a whole lot sooner, rather than later,” Keogh says.

The brand also has risen to become the No.2 choice of U.S luxury-car buyers behind BMW, something Keogh calls “a big achievement,” and now is listed among the top 50 most trusted brands in America by Philadelphia-based Sagefrog Marketing Group.

Audi also has staked out ground with critical Gen X and younger Gen Y buyers, who it believes will make up 70% of luxury-car buyers in 2020. Audi says it already draws the biggest share of those new-car buyers among luxury brands in the U.S., with 47% of its sales accounted for by the two groups.

dzoia@wardsauto.com