Based on the previous-generation 3 Series sedan, the BMW X3 is a downsized version of the X5 that promises similar levels of sportiness and utility. It has a high seating position, all-weather traction and just enough sharp edges to give it a look all its own. Add in plenty of bulletproof hardware from the 3 Series lineup, and indeed the X3 has all the makings of a very popular compact luxury SUV.

The BMW X3 features a full-time all-wheel-drive system dubbed xDrive. With the ability to detect slippage and redirect power to the wheels with the most traction, this system gives the compact BMW SUV outstanding handling in both wet and dry situations. In addition to all-weather capability, the X3 features a commanding view from the driver seat along with ample passenger and cargo room. Numerous storage spaces are sprinkled throughout the interior for added versatility, and the X3 can accommodate multiple mountain bikes, according to BMW. Like its 3 Series cousins, the X3 sports a stylish interior highlighted by large analog gauges and high-quality switchgear.

Unfortunately, not all of the materials used in the cabin meet premium standards set by the 3 Series, so those expecting an upscale environment may be disappointed. The BMW X3 is one of the few compact sport-utilities with a luxury-brand nameplate. Although we hesitate to recommend that anyone spend close to $40,000 on a small SUV, the X3's package of style, performance and day-to-day functionality could be compelling for shoppers who want a 3 Series sedan but need more cabin space and utility. It's certainly not a traditional SUV by any means, but if you like the way the 2006 BMW X3 looks on paper, you're most certainly going to like the feeling behind the wheel.

The BMW X3 is a compact five-passenger SUV that comes in one trim level, the 3.0i. Standard features include 17-inch alloy wheels, automatic climate control, leatherette (vinyl, that is) upholstery, full power accessories, automatic headlights, heated mirrors, a CD player and keyless entry. BMW offers three main option packages: Premium, Sport and Cold Weather. The Premium Package is highlighted by leather upholstery and an auto-dimming rearview mirror, while the Sport Package includes a sport-tuned suspension, 18-inch alloy wheels with performance tires and sport seats. The Cold Weather Package combats snowy climates with heated front seats and heated washer jets. Other popular options include a DVD-based navigation system, adaptive HID headlights and rear parking sensors.

The X3 gains motivation through a 3.0-liter inline six-cylinder engine that generates 225 hp and 214 lb-ft of torque. A six-speed manual transmission is standard, while a five-speed Steptronic automatic is optional. Also standard is an all-wheel-drive system dubbed xDrive that automatically distributes power to the wheels with the most traction for optimum performance in all conditions.

The BMW X3 features standard four-wheel antilock disc brakes, stability control, Hill Descent Control (HDC) and a full complement of front, side and side curtain airbags. Torso-protecting side airbags for rear passengers are optional.

It may look like an SUV but it sure doesn't drive like one. Much like its bigger brother, the BMW X3 feels more like a sporty sedan behind the wheel than a lumbering off-road machine. Typically precise steering combined with a tightly controlled suspension and perfect traction results in a BMW SUV that gives up little in the way of driving dynamics. The downside to this is that the ride quality can be overly stiff, especially on vehicles equipped with the Sport Package. However, if you're looking for the closest thing to a sports car with a high seating position, the 2006 BMW X3 is your vehicle.

The X3's interior is instantly recognizable as a BMW. Large analog gauges greet the driver, and the supportive seats provide a commanding view of the road. The audio and climate controls are more complex than we would like, but the overall look is very clean and uncluttered. Unfortunately, not all of the materials are up to the premium standards set by the 3 Series, giving the BMW X3 a more economy-grade feel than its price tag would indicate. The X3 offers 33 cubic feet of cargo capacity behind its 60/40-split rear seat. Lower the seat and BMW's compact SUV provides 71 cubic feet of space, slightly more than the midsize X5. Adjustable tie-down points in the cargo bay make it easy to secure your load.