Like most auto makers, BMW is constantly pursuing new customers, but lately they seem particularly interested in going after buyers of brands they don’t ordinarily compete with. How? By making an affordable vehicle that will persuade customers to abandon the notion they can’t afford anything from a luxury maker.

The 2012 BMW X1 xDrive28i is the vehicle in question, and can be had for a starting price of $38,500. It’s a compact vehicle at a compact price, not unlike European-type SUVs that offer luxury features in a smaller package. There’s a lot of pressure on the X1, but, after putting it through its paces, I can say that it definitely fits the bill of a potential game-changer.

The X1 is difficult to pigeonhole, part SUV, part crossover, part wagon, part car, all spliced together. But inside it’s pure of heart: the 2.0 L inline four-cylinder engine boasts a twin-scroll turbocharger that churns out 241 hp and 258 lb-ft of torque. Its eight-speed automatic transmission gets the X1 up to 100 km in 6.6 seconds. The four-cylinder doesn’t give you the same grunt or as smooth a ride as the BMW inline-six does, but what you get in exchange is stellar fuel economy. The stats speak for themselves: 6.5 L/100 km on the highway, 10.2 L/100 km in the city.

In terms of driving, the X1 exhibited much the same brilliant handling that distinguishes virtually all BMW cars and that has made the phrase “German engineering” into a marketing cliché. It was moderately slower upon initial acceleration, but, once it started to rev, it quickly justified its BMW badge. At 2,500 rpm, the power is immediate and gratifying. Power delivery is so linear that you might be closing on 140 km before you know it.

The all-wheel drive system, which is called “xDrive,” includes direct stability control (DSC) and an engine-management system. What really amazed me was how the system can distribute 100% of the engine power to either the front or back axles. For any car junkie, this is an exciting tool to have, since its sensors will let you know where to move some torque if needed. The XI also features a tire-pressure monitoring system and hill-descent control, so you’ll be apprised of everything that’s going on.

The eight-speed automatic transmission is the only option for the X1, but it does come with a manual shift mode, which allows you to really see what all eight-gears provide. Gear changes up or down were seamless, but while the serpentine gear shift is cool to look at, as in most BMWs it was a little tricky to use. In order to reverse, for instance, you need to push upward as opposed to down, which could get you into trouble if someone were to borrow your car.

The interior is cozy, though it lacks the plush design one might expect in a BMW. Unfortunately, sacrifices have also been made with the dash materials, where there was plenty of plastic to go around. However, the panorama sunroof is stunning and instantly stands out, creating the impression that you’re in a more spacious vehicle. Because the vehicle is uncharacteristically compact, back-seat passengers don’t have too much leg room. On the plus side, the rear seats can be folded down almost flat for more trunk space.

In almost every way, the X1 defies categorization. It really has no peers or direct competitors, and its compact size and price tag under $40,000 are sure to appeal to many prospective buyers who might previously have never considered BMW. For someone who’s looking for a powerful and luxurious compact vehicle, the revolutionary X1 could be the perfect fit.