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by Jez Spinks

BMW believes the increasing number of affordable compact luxury cars has the potential to double sales in Australia’s premium car segment.

The German car maker’s local boss, Phil Horton, says the premium market is already growing more rapidly than the overall market – up 14 per cent year to date compared with three per cent for all passenger cars and SUVs.

Horton says luxury cars have never been more affordable in Australia, though he also believes Mercedes has been unnecessarily aggressive with the positioning of its smallest car, the A-Class hatch [read our separate story].

“The premium segment in Australia year to date accounts for 8.4 per cent of total market. That’s quite low for a mature market like Australia,” says Horton.

BMW Concept Active Tourer dash lores

“I think there is opportunity to go up by another 50 per cent to 12 per cent… even 15 per cent over a period of time.

“More premium cars are coming in at the lower end.

“It’s no secret [we are building a] car to compete with the B-Class (Mercedes’ higher-riding version of the A-Class, pictured below). We’re going front-wheel drive. Introducing smaller engines.”

BMW’s B-Class rival is expected to be called the 1 Series Gran Turismo and based on the BMW Active Tourer Concept (main image and interior shot).

Mercedes-Benz B200 CDI driving

It’s one of about 20 new compact front-wheel-drive models that will emerge from the BMW Group in coming years, including the next-generation Mini that goes on sale in 2014.

Mercedes-Benz has already hit the ground running with a range of downsized models based on a new modular platform called MFA.

The A-Class and B-Class sit on the architecture, as does the CLA four-door ‘coupe’ (due locally later this year) and the GLA crossover (due second quarter 2014).

BMW 1 Series hatch

The GLA, though, is one model where Mercedes is playing catch-up to its German rivals, belatedly coming to compete with the Audi Q3 and BMW X1.

Mercedes is also considering models even smaller than the A-Class for the future.