DETROIT (Bloomberg) -- While BMW won the race for the U.S. luxury car market last year, the world's largest premium automaker is keeping a sharp eye on its rear-view mirror.
Facing increased competition from Daimler AG's Mercedes-Benz, General Motors Co.'s Cadillac and Volkswagen AG's Audi, BMW is determined to hold on to its hard-won top position with the arrival of the new entry-level 3-Series sedan in U.S. showrooms this weekend.
The stakes are high.
The success of the 3-Series, first introduced in 1975, has been a key to BMW's ability to outsell Mercedes last year and capture the U.S. luxury crown from Toyota Motor Corp.'s Lexus. That may change as a slew of competing entry-level luxury sedans increases the pressure on the new 3- Series, which features more power yet greater gas mileage than earlier versions.
"Ever since we came out with the 3-Series we were very successful, so we've been hunted for a long time," said Ludwig Willisch, CEO of BMW North America. "We are used to that."
The new 3-Series is making its debut as Mercedes is moving to surpass BMW. Mercedes was the top-selling U.S. luxury brand last month, its sales surging 24 percent to 20,306 while BMW rose 3.1 percent to 16,405. Lexus, which held the luxury title for 11 years until 2011, is targeting U.S. sales to surge more than 25 percent this year to 250,000.
Mercedes started selling an updated C-Class sedan in September that ended the year up 11 percent, edging out the 3- Series sedan by about 500 sales. Audi plans an updated A4 to arrive in U.S. showrooms around midyear. GM's Cadillac will introduce its first compact luxury car in about 25 years when the ATS arrives in the third quarter.
Still, BMW executives are confident they can outpace their rivals. Willisch said he expects sales of the new 3-Series to grow more than 10 percent and play a role in keeping BMW's sales ahead of the luxury pack. The 3-Series was last redesigned in 2005.
The 3-Series has generated $290 billion in revenue and $17 billion in earnings before interest and taxes since 1995, Max Warburton, a London-based analyst at Sanford C. Bernstein, has estimated. "It is one of the most profitable vehicles ever, thanks to big volumes and good prices," Warburton said in a Nov. 15 report.
The new 3-Series gets 36 miles per gallon on the highway and 28 mpg in combined highway-city driving with its eight-speed automatic transmission and stop-start technology that cuts the 4-cylinder engine at stoplights, compared with 28 and 22 for the outgoing 6-cylinder version.
The entry-level 328i will have 10 more horsepower than its predecessor, the company said.
"It's a perfect succession" to the previous version, code named the e90, said Satch Carlson, editor of Roundel, an enthusiast magazine for members of the BMW Car Club of America.
"If you liked the styling of e90, this is not going to scare you away," he said. "If you didn't like it, this is probably going to be more to your liking" because it's more refined.
The new 3-Series's styling may face challenges against the Audi A4, Rebecca Lindland, an industry analyst with IHS Automotive, said in an interview. "I don't know if it has the charisma of the Audi A4," she said.
Audi, which sold 27,517 A4 sedans last year, plans a refreshed version that includes changes to the front grille, including new headlights. The 2012 3-Series sedan starts at $35,795, $300 more than its predecessor, excluding an $895 destination and handling fee.
BMW expects the four-cylinder version will make up more than 50 percent of its 3-Series sales, Willisch said.
"A car of that size and that performance would be something 10 years ago that was unthinkable," he said. "It has 240 horses under the hood, so it is, as far as performance is concerned, better in every aspect in comparison to the former six-cylinder engine and it is much, much more efficient."
The 3-Series will get some additional attention in September when the automaker brings out an all-wheel-drive version, which made up about half of the model's sales last year. A hybrid version is also planned for the around the same time as the all-wheel drive version, with a 300-horsepower, six-cylinder engine.
The hybrid will probably make up less than 10 percent of sales, Willisch said. While skeptical that luxury customers are price-sensitive to gasoline costs, Carlson, the Roundel editor, said BMW customers care about image.
"They like to be known by the neighbors as conscientious, caring people who want to save the planet," he said. "Plus, they're in the luxury field with competitors who are coming out with hybrids for the same reason."