BMW has raised the profile of its X3, giving customers much more for less, says Andy Russell.

Talk about the X factor – just as the hit TV show puts new talent in the spotlight BMW's newly-launched X5 took us into a new millennium and a new era for the humble sport utility vehicle.

It came at a time when 4x4s were hugely popular everyday transport, often for all the wrong reasons as they never ventured off-road, but in the X5, the first of a new breed of sports activity vehicles, here was a car with the proportions of an SUV that drove like a normal car – and a prestige one at that.

It was followed in 2004 by the smaller X3, then the coupe-inspired X6 and finally the X1.

But for all its virtues and despite strong sales in its early years, the X3 never made the same impression as the X5 and when more dynamic X1 came along, the X3 seemed less appealing still.

Now all that has changed with the launch of the second-generation X3 which, 83mm longer and 28mm wider, looks sleeker and sportier and has far more road presence with its bold curves and contours – at last looking like a down-sized X5, all the prestige without the proportions.

If you are going to offer only one engine at launch you could not better BMW's excellent 2.0-litre turbo diesel – already a huge hit in 1, 3 and 5 Series models – and the model that accounted for three out of every four sales of the previous X3. With 184hp and a healthy 380 Newton metres of torque between 1,750 and 2,750rpm, it gives the X3 plenty of punch and class-leading performance. And with stop-start standard on both the six-speed manual and optional �1,525 eight-speed automatic, it also has the lowest fuel consumption and emissions.

The previous X3 was always good to drive, rivalling many prestige saloons and estates, but the new model takes ride and roadholding to new levels in its class. For the first time on this model variable damper control is available as a �930 option. It will appeal to keen drivers with the electronically-controlled dampers adapting to road conditions and driving style and automatically adjusting to give a smooth, supple ride and agile handling even with bigger 18in wheels. Drive dynamic control with normal, sport and sport+ modes, selected via a button by the gearlever, adjusts the damping behaviour, sharpens the accelerator and engine response, alters the power steering weight and levels of stability control and gives the X3 a sporty edge on twisty country roads while the electronically-controlled variable permanent four-wheel drive goes about its business in the background to ensure plenty of grip and putting the power down on the road safely. Electric power steering is standard but my test car came with the optional �380 variable sport steering which is more responsive with good feel and feedback but I found it a little too sensitive in strong crosswinds.

Bigger on the outside means bigger inside, particularly in the back with significantly more legroom so tall passengers can stretch out and will appreciate the headroom with the seats set quite low. While three adults will fit across the back seat, the middle passenger has to straddle the raised chunky transmission tunnel.

The boot has grown by 70 litres to a more than useful 550 litres with the rear seats in use and is easy to load, with the floor level with the load sill, even if it is higher than a normal estate car. There is also a shallow underfloor storage compartment for nick-nacks. The standard 60/40 rear seat backs fold down but don't go completely flat until you get some weight on them. For those who want more practicality 40/20/40 split rear seat backs are a �170 option.

The X3's interior is a most pleasant and comfortable place to be with excellent fit and finish and classy upmarket trim materials while the classic BMW fascia with big rev counter and speedo flanked by fuel and temperature gauges, chunky easy-to-use control levers with a solid action and simple push buttons for heating and ventilation is very much geared to making life simple for the driver. The latest iDrive controller, which takes care of many functions and settings, is so intuitive that you very soon feel at home with it and wonder why more manufacturers don't go this route of a central controller. The X3 gets an electronic parking brake which keeps the centre console uncluttered but, and this is a bugbear with many such systems, it is a shame it has to be released manually when you pull away. You'll like the higher driving position but won't be so keen on the manual control levers to adjust the height of the driver's seat and angle of the seat back which are difficult to get a precise set-up.

Launched purely in SE trim – sportier M Sport follows in spring – the X3 get lots of luxury kit as standard including leather upholstery, front, side and curtain airbags, all the electronic driver aids to keep you on the road and some to help off-road including hill-descent control, front and rear parking sensors, front fog lights, two-zone climate control, automatic lights and wipers, cruise control, keyless ignition and on-board computer. The fact that the test car came with more than �9,000 of options shows there's plenty of scope for customising the X3 although I have to say I would happily live without most of them.

So the new X3 is bigger, more imposing, looks and drives better and has a better specification yet it cost less than the previous model, and undercuts key rivals. Add to that much better used resale values and the lowest tax bill in its class for company car drivers and it's not difficult to put your cross against the X3.

BMW X3 xDrive20d SE

Price: �31,135

Engine: 1,995cc, 184hp, four-cylinder turbo diesel

Performance: 0-62mph 8.5 seconds; top speed 130mph

MPG: Urban 42.2; extra urban 56.5; combined 50.4

Emissions: 149g/km

Benefit-in-kind tax rate: 21pc

Insurance group: 28 (out of 50)

Warranty: Three years/unlimited mileage

Will it fit in the garage? Length 4,648mm; width (including door mirrors) 2,098mm; height 1,675mm