I first drove a car at 150mph exactly 20 years ago. It was a Ferrari. I can remember the anticipation as the toll booth barrier released me onto a deserted French autoroute and I booted it. Its 3 litre V8 engine got me to 135mph fairly quickly but that last 15mph took an age. After howling at me for what seemed like days, the engine finally pushed the speedo needle to the magic ton-and-a-half mark.

I did 150mph again last week, but in rather different circumstances. This time I was not in an Italian supercar but a 2 litre diesel saloon. Again it took a long time, and I can’t vouch for the accuracy of its speedo, but what I do know is that, given a sufficiently long stretch of road, the new BMW 320d will comfortably reach 150mph. Twenty years ago you’d have struggled to find a 2 litre diesel that would do 100mph.

Such is the pace of change in this industry in general and at BMW in particular that with the new 3-series BMW finds itself in the curious position of replacing a car that’s still the best in its class and selling in massive numbers despite being six years old. Last year in Britain it outsold the likes of the Vauxhall Vectra and Volkswagen Polo.

Although the coupé, touring and cabriolet models will continue until they’re gradually superseded over the next two years, the new saloon will be in the showrooms from March. It is slightly larger in every direction, considerably less attractive and even more able than the car it replaces.

The showpiece of the new range is clearly the 320d. It will sell as many as all the other 3-series models put together and, for the money, it offers the best value.

In SE trim the 320d costs £24,390, or just £1,800 more than a similarly specified 320i. Yet it offers more power (163bhp v 150bhp) and better acceleration (0-62mph in 8.3sec v 9sec). It will also depreciate much more slowly, but the killer is its fuel consumption: this car, which even BMW says will do 140mph, will return around 50mpg. The petrol car can’t get close to 40mpg.

These figures are extraordinary. A shame, then, that such a superlative engine is fitted to such a disappointing looking car. It’s not ugly like the 1-series or 7-series. BMW couldn’t afford to risk doing anything radical to a car responsible for 60% of its sales. If anything, it has been too conservative. The car is bland on the outside, drab on the inside and a poor shadow of its sleek looking predecessor. It looks like a committee car. When I tested it in Spain it attracted very little attention, even after a couple of hundred miles in and out of Spanish towns.

Once, I got stopped by the police. They had a good look over the car but even after I had won them over and got chatting they seemed unaware they were in the presence of perhaps the most important car to be launched in Europe this year.

BMW has worked hard on the interior and has liberated more leg and shoulder room in the back. Then again it has largely negated these advances by reducing headroom. If you’re 6ft or more, the rear of the cabin will be as off-limits as ever.

But owners of this, the fifth generation of the 3-series, will never sit in the back and will care rather more about how it drives. And by its class standards it is exceptional. Quicker and dramatically more refined than its closest rival, the noisy Audi A4 2.0TDI, it rides and handles with more aplomb, too. On the motorway the engine remains unobtrusive even at high speeds and when the roads start to curve you’ll find the 3-series a more willing partner than ever. There’s more grip, the steering is sharp and full of feel and, in extremis, its manners are utterly impeccable.

The other 3-series I drove, the £28,455 330iSE, was slightly less impressive, not least because BMW had chosen to fit it with its ghastly (and mercifully optional) active steering system. This varies the steering’s gearing according to road speed with the result that you never quite know how far the car is going to turn when you move the wheel. But its new 3 litre 258bhp engine is a masterpiece, hurling this staid-looking saloon to 62mph in 6.3sec. It would go past 155mph, too, were it not for electronic intervention.

But the little diesel is the star and the only thing that really depresses me is that it’s soon to become the weapon of choice for all those thousands of neanderthal single males who currently use the 3-series as a guided missile in their quest to get from one end of the motorway to the other faster than anyone else. I can already hear the drooling.

BMW is not to be blamed for the excesses of its customers. Unlike its last effort, the deeply disappointing 1-series, BMW has judged the 3-series if not to perfection then certainly to a level damn near to it. It may look a little dull inside and out, but do not let that mask the true significance of the new 3-series: the finest small saloon in the world just got a whole lot better.

Vital statistics

Model BMW 320d SE
Engine type Four-cylinder in line, 1995cc
Power/Torque 163bhp @ 4000rpm / 251 lb ft @ 2000rpm
Transmission Six-speed manual
Fuel/CO2 49.6mpg (combined) / 153g/km
Performance 0-62mph: 8.3sec / Top speed: 140mph (officially)
Price £24,390
Verdict The best small saloon in the world
Rating 4/5

The opposition

Model Mercedes C220 CDI Classic SE, £24,650
For Comfortable ride, good handling, frugality
Against Limited performance, too costly

Model Audi A4 2.0 TDI SE, £21,950
For Great-looking and beautifully built
Against Noisy engine, chassis not up to BMW's