BMW has raked in profits selling high-priced larger cars and is now getting ready to venture into less familiar turf - the highly competitive compact segment - with its new 1 series, which will sell for not much more than a similar-sized Volkswagen Golf.

According to the Associated Press (AP), the company said the new vehicle combines the functionality of the popular hatchback category with what it says will be the higher performance associated with its products.

"We see an increasing demand for a premium vehicle in this compact segment," company spokesman Eckhard Wannieck told AP.

The car reportedly won't go on sale in Europe until September 18, but BMW is already marketing it heavily in Germany with television ads.

The pricing, while higher than competitors in the segment, dips fairly close to the Golf and the Audi A3 - the entry-level 1 series will sell for about $US23,000, the company told AP.

The Golf with an equivalent engine runs around $22,600, and an A3 can cost around $22,800.

Prices in the key right-hand drive market, the UK, will start at £15,690. The car also goes on sale there in September, skipping the normal several months delay for RHD cars.

Auto analyst Christoph Stuermer at research firm Global Insight in Frankfurt told the Associated Press that the car fulfills long-delayed BMW ambitions to make smaller cars - those plans went awry when its acquisition of Britain's Rover in 1994 turned out to be a flop and it disposed of its would-be mass-market arm.

"BMW is enlarging the product portfolio in the direction of greater affordability, which they had originally intended to do with the acquisition of the Rover group," Stuermer reportedly said.

Stuermer also told AP that the company has a chance to spread its development costs by sharing much of the design and engineering with the next version of its mainstay 3 series - similar parts will allow the two vehicles to be built on the same production lines.

AP said BMW is counting on the brand's "aspirational" or premium image and sportier performance to carve out a slice of the segment, which was pioneered by VW, but is now crowded with imitators that include the Opel Astra, Ford Focus and Alfa Romeo 147.

Unlike the three-door only 3-series Compact, the 1-series is going to the United States, but no date has been set, BMW told the Associated Press.