Audi drives to gain on rivals in entry-level luxe

Audi launches new A3 in California

Audi, the German luxury auto brand that has long been overshadowed in the U.S., is betting it finally has the car to challenge Mercedes-Benz and BMW in the country's fast-growing entry-level luxury market.

After unveiling the A3 last year, the automaker is giving journalists a chance to test drive the new vehicle before it goes on sale in April.

"There's a big market that wants to come in and enter luxury, and for a car at $30,000, this is a price point to do that," said Scott Keogh, president of Audi of America.

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For years, luxury automakers have been pushing the price of entry-level models lower and lower. Mercedes broke the $30,000 barrier with the CLA-Class, which went on sale early last year and sold more than 14,000 models in the U.S.

Earlier this year, Mercedes-Benz CEO Dieter Zetsche told CNBC, "I've never seen a car getting this much attention."

The success of the "Baby Benz," as many call the CLA-Class, was not lost on Mercedes rivals—in particular, Audi.

"This segment is [going to] be going up by nearly 400 percent between now and 2020," Keogh said. "A lot of competitors are introducing products here. We feel [we've] got the right one to compete."

The new Audi A3 Sportback e-tron is presented during a preview show by Volkswagen Group on March 3, 2014, on the eve of the press day of the Geneva Motor Show.
Fabrice Coffrini | AFP | Getty Images

In-car connectivity

When you slide behind the wheel of the A3, the 2.0-liter direct inject inline 4-cylinder engine puts out 220 horsepower, which gives the kind of acceleration you'd expect. Its agility moving through traffic was impressive.

But what really stands out about the A3 is the level of technology packed into the small sedan.

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It's the first car in the U.S. to have a 4G LTE system delivering fast connectivity as you use the navigation system. Google Earth allows you to get a street view of the destination where you're heading.

One of the more noteworthy features is MyScript through the Audi touchpad, which allows you to use your finger to spell out whatever you're looking for while driving. So if you want to find the closest Starbucks, you would spell out "" on the touchpad, and several nearby locations are called up. The system is intuitive and easy to use.

"When you see the materials, not only the features, but the way everything is laid out and set up, the A3 feels like a more expensive car," said Ed Hellwig, executive editor of "Even if it is the entry-level Audi, people know when they get in and drive it they will feel like it costs a lot more than its $30,000 entry price."

Audi is hoping reviews like that translate into big sales for its smallest car, which is joining a crowded race in entry-level luxury.

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The Cadillac ATS, Lexus ES, BMW 3 Series and Mercedes CLA-Class all are coming off a big year, with their collective sales jumping 36 percent.

That's compared to total industry sales rising just 7.8 percent.

While this means more competition for Audi, it also shows just how much demand there is for a moderately priced luxury car.

"This is where the action is," Keogh said.

—By CNBC's Phil LeBeau. Follow him on Twitter @LeBeauCarNews.

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