The BMW 318d has arrived, and it’s timing couldn’t be more crucial for the Bavarian car maker. The BMW 3 Series is being throttled by its arch-rival, the Mercedes-Benz C-Class, in Australian luxury car sales, despite the launch of an all-new Three earlier this year.

BMW’s signature model has been missing its crucial volume models, having launched only the BMW 320d, BMW 328i and BMW 335i variants. So now for the crunch.

With a starting price of $56,400, the new BMW 318d becomes the new entry model in the all-new BMW 3 Series range. It replaces the BMW 320i as the most affordable 3 Series, though that model also returns (click to read separate review).

The BMW 318d is priced a good $4000 cheaper than the entry C-Class diesel, the C200 CDI, and brings with it the latest in diesel engine technology, an eight-speed automatic gearbox and fuel consumption that’s superior by nearly a full litre (4.5L/100km v 5.4L/100km).

Although the 318d uses essentially the same engine as the 320d, the difference in tune (and a few components) results in 105kW of power (compared with 135kW) and 320Nm of torque (compared with 380Nm). On city roads the difference is hard to notice but when it comes to merging on the highway or performing an overtaking manoeuvre, it’s easy to feel the difference. Put the two side by side and the 318d will take an additional 1.7 seconds to go from 0-100km/h (9.3 seconds).

Behind the wheel the 318d embodies the essence of what the new BMW 3 Series range offers: a dynamic and sporty drive. Coupled to an eight-speed automatic (standard), the 2.0-litre diesel works coherently in delivering all its torque and power and hardly feels over-laboured in the task. There’s that feel that more torque would be welcomed (which is where the 320d comes in), but overall it’s more than capable of performing everyday tasks.

With the option of three driving modes (Eco pro, Comfort, Sport), the 318d can change its characteristics with a press of a button. For example, select Sport mode and instantly you’ll be rewarded with a more responsive engine, sharper steering and accelerator pedal response and a change in gearbox shift dynamics. None of this is new to BMW, but to have it as standard kit on the base model 3-Series isn’t something that should necessarily be taken for granted. Ultimately it doesn’t make the 318d any faster, but once you’re out of suburban traffic and keen on a spirited drive, it makes for a more enjoyable experience.

This is where BMW has had the edge over its German and Japanese rivals for some time. Even its entry model cars tend to steer and corner better than their rivals. There’s something intrinsically more enjoyable about being in control of a BMW 3-Series if you appreciate the act of driving as more than just getting from A to B. Those who are overly obsessed with style may be polarised by the Three’s front-end design but it certainly has road presence.

In the past we’ve criticised BMW for delivering uninspiring and somewhat Spartan interiors. Generally overdosed on black colours and oozing little character. This is still the case when it comes to the current 1 Series Coupe/Convertible but for the new 3 Series, it has all changed. A soft-touch interior is something we’ve come to expect but there’s now the option of much lighter interior colours (even for the steering wheel) and the inside is a generally more inviting and a nicer placer to be. It’s quiet, too; despite the diesel-powered heart, the clatter is hardly noticeable on the road.

A new 6.5-inch colour screen is standard (although adding sat-nav is still a $1538 option for the 318d) and makes using iDrive a better experience. Air-conditioning controls (dual-zone) and overall quality of switchgear is top-notch. The Sensatec man-made leather interior upholstery is by no means a comparison for the real stuff found in the 328i and 335i but still does a great job of portraying a luxury interior. Compared with the previous-generation BMW 3 Series, the 318d offers 15mm more knee room and 8mm more headroom for the rear passengers. Size-wise, it’s equivalent to the 5 Series of the early 2000s, which means it will easily accommodate four large adults for long-distance drives with the option for a fifth when required.

BMW’s strategy with the 318d is to attract potentially new buyers into dealerships primarily on price. Given the cost difference between a 318d and 320d is a mere $4000 and you gain a noticeable amount of equipment upgrades on top of the power and torque increase, it’s a very logical upgrade.

On the equipment side, the entry model 318d gets 16-inch alloy wheels, an automatic opening boot lid, keyless push button start, rear parking assistance (front optional) and a 6.5-inch colour screen iDrive infotainment system that is hooked up to six speakers (4x25W). Bluetooth telephone connectivity is standard but Bluetooth audio streaming is an option, which is rather disappointing given cars far cheaper offer the system as part of the standard Bluetooth kit.

Safety features include driver and front passenger airbags, head airbags in the front and rear, side airbags for driver and front passenger as well as dynamic stability control and the guarantee of BMW’s excellent build quality in the event of an accident.

The BMW 318d is a very capable and efficiency package for buyers in the market for one of the most affordable compact executive sedans.

But it’s worth spending your bonus on the BMW 320d that costs a few thousand dollars more but brings more power and torque, extra driving modes (Sport Plus), bigger wheels, gearshift paddles, better interior lighting, rear parking sensors, and powered front seats.

The BMW 318d is available in four grades: Standard, Modern Line ($3900), Sport ($4900) and Luxury ($4900).