WHEN is a diesel not really a diesel? When it powers BMW's 3 Series Compact.

As a means to make the pound in your pocket go further, the cut-down BMW succeeds - but such behaviour misses the point of the German Derv drinker.

Like VW and Audi, BMW has spotted a gap in the market for a "performance" diesel. The German company's 3 Series Compact may not be the first to deliver hot hatch excitement, but it does promise to thrill the enthusiast without breaking the bank.

While the 320td forms only a quarter of the model line-up - the range goes from the 316i to the flagship six-cylinder 325i - it's an important car nevertheless. Compact rear-wheel drive cars are rare at the best of times but one boasting more torque than a Porsche Boxster S deserves to be applauded.

Putting the Porsche into perspective, the Compact's 243lb/ft of torque - or pulling power - is comfortably ahead of the Boxster's 225lb/ft total. Sure, the 248bhp Porker is famously better at other things, but the shove you get when accelerating hard in the BMW is all the more impressive when you realise it shares its favourite tipple with a Transit van and gets by with "only" 148bhp.

While BMW may have skimped on its length, all the familiar Bavarian trademark signs are present. Tight panel gaps, smart alloy wheels in the case of the test car's SE spec level and the trademark "kidney" grille. There the comparison with the mature 3 Series Saloon ends as the Compact's corners are graced with jewel-like lenses aft and circular, twin-lens units up front peering through a pair of funky bonnet cut outs.

Although the Compact is clearly focused on capturing the attention of the younger end of the buying spectrum, the youthful styling approach complements the car's core values and it's still unmistakably a Three - albeit a shorter one.

The Compact may be a hatchback but don't think that house prices will tumble now that such a bombshell has been dropped. Although bereft of two rear doors, it could never be described as ordinary.

Although access to the rear can be a squeeze for full-size humans, once past the fold-forward front seats the rear chairs more than earn their keep. Compact by nature, the aft compartment is best suited to short trips, but legroom is miles - or more accurately inches - better than you would think for something so small.

If the back half is all new, at least the front of house will be familiar to any 3 Series pilots. Fascia, steering wheel, minor controls and seats have all been lifted from the full-length model. Considering BMW's mastery of all things ergonomic, it would be mad to mess with such a successful formula. With switches within easy reach and a multi adjustable seat and wheel at your disposal, aches and pains will be a distant memory from an inferior mode of transport.

It's out on the road, though, that the 320td shines. Once the engine's warmed up and shed its telltale diesel clatter you're left with a soothing thrumming noise at idle.

Pulling away elicits a harder-edged soundtrack and the engine's thick wedge of torque is all too apparent. Around town, second and third gears are all that's required to coast from house to shop and back, while a quick prod of the accelerator will have you lunging towards tomorrow such is the turbo's lag-free delivery.

Even at shopping trolley speeds, the car's abilities shine through. The direct steering is a boon when darting between menacing potholes, and the ABS-equipped brakes will haul you up in good time if Tiddles forgets his Green Cross Code.

That the 320td is entertaining in the concrete jungle is only half the story, as playing touring car driver on the open road is when the Compact really comes alive.

Traditional hot hatches may trade on their frenetic demeanour but, as you mash the accelerator to the floor, the Compact will zip from corner to corner on a wave of velvety-smooth torque.

Raw performance figures don't do the Compact justice. Mid range urge is the 320td's trump card, making overtaking an activity that can be conducted almost at will, yet safely and swiftly. So you don't forget where you are, the BMW's diesel motor growls as you dash towards the horizon, and each gearchange is accompanied by a boy-racer whoosh from the turbo.

There's something to add about that gearchange. Since the car's introduction, BMW's engineers have added another cog to its manual 'box - bringing the tally to six. Top gear is now a proper cruising ratio, and ideal for long-legged jaunts linking European capital cities. Just as before, the shift action is light and precise, and the clutch is perfectly weighted so as not to make your left leg ache when stop-starting on the way to work.

However, what makes the Compact - any Compact - special is its rear-wheel drive layout. Make no mistake - the original formula is still the best for delivering first-class driving enjoyment. The car's communicative steering and nimble handling are the products of such engineering, making every roundabout and sinuous B-road a mini adventure.

On paper, BMW's 320td Compact is economical and swift, but the bald facts don't tell the full story. The baby BM has all the right ingredients - muscular engine, rear-drive mechanics and an ace driving position - to make it a modern day GTI-basher but, somehow, the moniker lacks the prestige ring that the Compact so richly deserves. Any takers for executive express?