The X3 is BMW's compact SAV (Sports Activity Vehicle as BMW calls it) based on the 3-Series platform. The drivetrain utilizes the xDrive all-wheel drive system. Priced at around $39K, this SUV faces increasing competition from domestic and Japanese manufacturers. The marketing strategy is geared to bring younger buyers, who cannot afford the X5, onboard as a BMW customer.

The X3 was extensively updated for 2007. BMW now offer the X3 with only one powertrain: a 260-bhp/225 lb.-ft. 3.0L inline-6, coupled to a 6-speed automatic. Optional 18-inch and 19-inch alloy wheels are available. Interior upgrades include higher-grade leather, standard wood trim, and redesigned instrument panel. New front fascia styling features a more pronounced grille and headlight design. The updated rear end features new chrome exhaust outlets, a new bumper and new taillights.