Long known for its luxurious sedans and sporty coupes, Audi has taken the logical next step by combining the two. Result: the 2006 Audi A3, a compact luxury-performance hatchback compelling enough that we quickly added one to our long-term test fleet.

The A3 is powered by a new turbocharged, 2.0-liter, four-cylinder with FSI direct injection, the world's first production engine to combine FSI gasoline direct injection with a turbo. This combination delivers 200 horsepower and a maximum torque of 207 pound-feet, available from 1800 to 5000 rpm. A six-speed manual gearbox is standard, while the Direct Shift Gearbox automatic transmission is optional.

The cockpit is what we've come to expect from Audi: high-quality materials combined with superb fit and finish. The low-slung seats are plenty sporty, while aluminum accents convey a sense of elegance. Driver and front passenger enjoy an abundance of roominess, but the person sitting in front determines the rear-passenger's legroom.

We opted for three packages: The Sport package ($1800) delivers leather seating surfaces, 17-inch wheels with summer tires, sport suspension, aluminum beltline moldings, roof spoiler, front foglights, and sport seats. The Sound package ($900) adds a Bose premium sound system with in-dash six-CD changer. The Convenience package ($675) includes a HomeLink remote transmitter, extra storage pockets and nets, a trip computer, an auto-dimming interior mirror, and light and rain sensors. Bluetooth ($435) enables hands-free calling with the latest cell-phones. XM Satellite Radio ($350) and light silver metallic paint ($450) brought our as-tested total to just under $32,000.

The Audi A3's MacPherson front suspension and four-link independent rear are designed for sporty and agile handling, producing excellent stability and cornering performance.

The first service came and went with no problems to report. After an oil and filter change, we were on our way, with everything covered under Audi's free maintenance program (which will end with 2007 models).

Building off the success of the Audi TT, the A3 delivers most of what the coupe did--plus two extra doors and room for luggage.