It’s doubtful whether even those inside BMW’s HQ in Germany who gave the green light to the 1-Series ever thought it would be such a global hit when it originally launched in 2004.

After all, there were more than a few detractors, including long-time BMW aficionados and enthusiasts who didn’t see the car as a ‘proper’ BMW, and questioned the need for anything smaller than the benchmark 3-Series model. (They’ll go through it again no doubt with the forthcoming front-wheel-drive BMW being twinned with the third-generation new Mini, but that’s another story.)

History has well and truly proved the sceptics wrong, with the first-generation 1-Series notching up a not-too-shabby 1,219,365 global sales over its eight-year model life.

And while that might be a tad longer than the average life-cycle these days, the all-new, second-generation 1-Series has been well worth the wait – with a raft of improvements that should ensure this latest iteration should prove just as successful.

For starters, BMW’s latest 1-Series maintains its distinct advantage over its closest competitors in the luxury compact segment: it’s a front engine/rear-wheel-drive set-up with a near 50:50 weight balance and low centre of gravity, and as such, offers exceptional driving dynamics.

There are two engines used across the three variants that make up the 1-Series hatch range that includes two variations of BMW’s new 1.6-litre four-cylinder turbocharged petrol engine, and the 2.0-litre turbo-diesel that sits in our 118d test car.For now, the 118d is the only diesel variant in a three-model hatchback range that launched last October (the coupe 1-Series isn’t replaced for a little while yet).

Inevitably, its miserly official rate of 4.5L/100km (combined) betters the 116i (5.7L/100km) and 118i (5.8L/100km) petrol models, though it doesn’t lose any satisfaction in the driving stakes.

Although there’s only 105kW of power – not much more than a Toyota Corolla – 320Nm of torque guarantees plenty of punch out of the gate and even more impressive in-gear acceleration – thanks to that peak torque of 320Nm kicking in from as low as 1750rpm. Like many of the new-generation diesels, the 118d feels a lot punchier than its 0-100km/h time of 8.9 seconds might otherwise suggest.

Jump on the throttle (something you’ll want to do quite often in this car) and there’s minimal turbo lag and enough grunt on tap to produce what feels more like a hot-hatch than a super-efficient oil-burner. And with CO2 emissions of 118g/km you won’t have to feel too guilty about driving enthusiastically.

The smooth-revving four-cylinder turbo diesel is happy, in a petrol-like way, to spin out to its 5400rpm redline, though the meaty mid-range means there’s never really any great need to maintain full throttle in the 118d unless overtaking a B-Double on the freeway.

Equal to the task of shifting our 118d test car is the rapid-shifting eight-speed automatic transmission, which is another first for the category. With so many gear ratios on offer, there’s always plenty of ‘go’ without the need for the transmission to continuously  ‘hunt’ for the correct gear ratio. The downside is that it’s a $2695 option over the standard fit six-speed manual transmission, but it’s a option well worth having.

Stop/start technology is also standard to help improve consumption, though while it’s fine for short periods, but best left deactivated, if you face long periods in stop/start traffic, otherwise you may find it overly intrusive and downright annoying.

Of course, how fuel efficient you truly want to be depends on your driving.

More than likely, you’ll find yourself switching between ‘Eco Pro’, ‘Comfort’ and ‘Sport’ driving modes, depending on traffic and road conditions at the time. Choosing ‘Eco Pro’ will retard throttle response, as well as more time spent in the higher gear ratios for lower fuel consumption. In ‘Sport’ mode, throttle response is understandably more aggressive, and shift points are extended before changing up.

You can also choose to shift manually using the sequential shift lever, but we found the ‘Sport’ mode to be the best option when outright performance is a priority.

BMW doesn’t refer to the 118d as a performance variant in the same way it would, say, a 135i, or even the 123d. But when it comes to chassis dynamics and the way this thing handles corners, the 118d is every bit the consummate performer.

The steering is beautifully weighted and quick to respond, without being overly sensitive. That allows for a great deal of driver involvement whenever the opportunity allows drivers to press on a little. The car feels balanced and stable under moderate to high loads, while the brakes offer a level of composure under load that few other cars in this class enjoy.

Ride quality is excellent, like with most BMW’s; it never feels rigid, or uncomfortable. This is a very supple chassis that offers a decent level of comfort over almost all surfaces. That’s especially so when it comes to potholes; small or large, they are completely absorbed by the strut front and multi-link rear suspension combination. The only irritation is with the Run Flat tyres on this car; while we accept the benefits of being able to drive on a flat, they compromise what is otherwise a superb ride.

From a styling perspective, the 1-Series has never been considered BMW’s most aesthetically pleasing work. While the new generation car is certainly more contemporary in design, it’s still no Cinderella.

It’s a larger car all round (85mm longer) on a 30mm longer wheelbase and slightly wider for improved comfort.

Rear seat legroom, an issue with the original 1-Series, remains nothing special despite that wheelbase increase, while the rear-wheel-drive architecture also means a large transmission tunnel eliminates any foot space for the middle passenger.

On the plus side, there’s 10 per cent more luggage space with good height and depth for larger boxed items. Fold the 40/20/40 split rear seats flat and the 118d’s 360-litre cargo capacity grows to a sizeable 1200-litres stowage area. That means longer objects such as surfboards, skis and snowboards can be easily swallowed through the rear hatch.

The front track has been widened by 5.1cm and the rear track by 7.2 centimetres, so apart from the contribution of those slightly larger dimensions to the 118d’s excellent dynamics, it also has a more masculine profile.

The new front-end treatment, including larger grille, more pronounced bonnet and deeper front apron certainly have more road presence than the first-generation car, while the rear end styling remains relatively similar.

The side view looks better, too, with a distinct character line running from the taillight assembly through to the front wheel arch, which again increases the car’s masculinity and visual appeal over the previous model.

Our test car was optioned with what BMW calls the Urban Line, which includes various design accents such as the white kidney bars in the grille and a white trim bar at the bottom of the centre air intake and on the rear bumper trim. Other standout features in this option pack include a superb sports leather steering wheel and gloss white alloy wheels.

Inside, there are plenty of metallic accents and piano black trim to at least make the cabin interesting, but it still doesn’t feel quite as premium as it should.

Once behind the wheel though and it’s very easy to forget any such shortfalls in the look and feel department. The sports leather seats are some of the best in the business and position the driver deep into the car. They’re also superbly bolstered and hold your torso firmly in place whenever enthusiasm gets the better of you.

Yes, there are typically loads of options you can choose from for your 1-Series, but the standard kit inventory isn’t lacking in any way. Highlights include a 6.5-inch colour monitor linked to iDrive, Bluetooth phone and music streaming with additional USB interface, Automatic climate control with microfilter, park distance control – rear, automatic headlights and wipers, anti-dazzle rear vision mirror and 17-inch BMW light alloy wheels with run flat tyres.

Occupant safety is well catered for, too, with a full suite of active and passive safety features.

It’s difficult to think of a better combination when it comes to luxury, performance, ride and handling and fuel economy in the luxury compact segment than what BMW’s 118d delivers.

Rear seat space will be an issue for those buyers looking for good rear-seat space, however, while it’s worth noting you could buy the quite brilliant VW Golf GTI for similar money.

Until the new Audi A3 and Mercedes-Benz A-Class come along in the next 12 months or so, however, the BMW 1-Series is the best bet for those looking for an affordable hatchback with a premium badge on the rump.