BMW's first foray into the SUV market, with the X5, set new standards in the class giving rivals such as the Range Rover a real shock with stunning on-road dynamics together with reasonable off-road capability. BMW's inexorable march across the motoring landscape sees the company biding for bragging rights in the more compact SUV market; building on the success of X5 BMW made a smaller SUV, the X3.

This is very much a chip off the old block; indeed it looks very much like the X5 in many ways with only the view of the rear being significantly different. On the move you need a sharp eye to differentiate between the two. The dimensions of both cars are very similar although they are separated by a sizable margin in terms of price.

Our test car, the 2.0d SE is powered by the now familiar 2-litre 150bhp, 243lb.ft, turbodiesel engine that does a commendable job of propelling the 1,800kg X3 along. Though you'd never call it quick, this powerplant endows it with reasonable pace with a 0-60mph time of just over 10 seconds and a maximum speed of 123mph. It revs smoothly and has a wide power band, no doubt making it a decent towing vehicle as well as a family wagon. The car is most at home on the motorway though where the engine hums away in the background whilst returning more than 30mpg.

For a car of this type the X3 is very capable on the road; one wouldn't call it completely car-like though, as the high centre of gravity has to ultimately lead to body roll, but it is well contained. Certainly up to the point where most people drive, the X3 corners quite cleanly and flat, with the four-wheel drive (more of which below) and Dynamic Stability Control (DSC) working merrily away to keep everything pointing in the right direction. The steering is quite light but is direct and accurate and surprisingly nice too. The whole thing is well set up to allow some B-road fun when circumstances allow without unduly sacrificing ride quality around town, or that all important theoretical off-road ability. It feels very much like a jacked up saloon car as far as driving is concerned, such are its manners, and doesn't impose the compromises some similar rivals do in terms of driver and occupant safety and comfort.

The six-speed manual 'box is slick shifting and precise, a real revelation if you're used to the normal shift quality associated with traditional SUVs. The X3 features full-time four-wheel drive through a system BMW calls xDrive. This transmission works in conjunction with the DSC to evaluate the current driving conditions and apportion drive accordingly. The xDrive varies drive torque continuously allowing the redeployment of power to whichever wheel or axle the software deems appropriate. In normal use the power is split 68:32 rear to front but this can be varied to as much as 100% rear wheel drive. You can actually feel this working in hard cornering or in slippery conditions.

Further driving aids include Hill Descent Control, where the car can be programmed to make a controlled descent of a slope by applying brakes to keep the car in check, with the driver just having to steer. Another useful feature is the Trailer Stability Control that works in conjunction with DSC to detect a trailer becoming unstable and also assist the driver in keeping it in check, helping to prevent jack knifing for example.

I must admit though, for a BMW, the interior of the X3 is disappointing. There is no quibbling with the amount of space inside, not far short of the X5 in actuality, and there is a cavernous load space in the rear as well. It is the quality of various materials around the cabin that is quite poor. BMW obviously has to keep the prices of the X3 and X5 a reasonable difference apart to have two very disparate models and the interior is where the cost difference is most apparent. In particular, the dashboard looks and feels a bit cheap and flimsy: very un-BMW of late.

Equipment wise the X3 SE comes with a sensible range of SUV and family car features; automatic air conditioning, CD player, 12v power sockets on the inside. 17-inch rims, roof rails and stylish colour coding on the outside. The front and rear parking distance sensors are a massive help in confined spaces too. It is all but impossible to judge where the X3's extremes are without it. In addition to this standard equipment our test car was also fitted with BMW's excellent 'Professional' satellite navigation system, a 6 CD changer, rain sensitive wipers and rear side airbags, amongst other things, making it a £30k car.

Overall the X3 is a bit of an underachiever. It is certainly the weakest package BMW offers at the moment in my eyes, almost entirely down to the interior. Personally if I wanted a BMW family wagon I'd go for a new 3-series Touring as it offers superior road handling and driving characteristics and the interior is in a different league. If an off-roader is a must the X3 won't disappoint, but just be sure that you really do need that off-road capability and a 3-series Touring won't carry out the same tasks for you.