Growing bigger runs counter to increased fuel economy regulations.

The original BMW X3 came as a shock to many fans of the brand for its excessively stiff ride as well as an interior that didn’t live up to the automaker’s usual standards, although it wasn’t noted much by media at the time.

So, the goals for the second generation of what BMW calls a Sport Activity Vehicle were obvious from the start: Fix the suspension and improve the interior.

While we haven’t had a chance to drive the new X3, the people in charge of the new trucklet say the suspension issues have been thoroughly worked out. And after sitting inside a pre-production X3 at the Management Briefing Seminars in Traverse City, we can report that the new interior is first rate. In fact, the some of the plastic in the production version will be even better than the prototype with less gloss.

No interior pictures were provided on BMW’s media Web site and journalists were not allowed to take photos of the vehicle in Traverse City.

BMW will unveil the production version at the Paris Auto Show this fall.

Two versions will be offered. The xDrive28i will have a 240-horsepower 3-liter V6. A turbocharged version of that engine will produce 300 horsepower in the xDrive35i. The current X3 has just one engine, a 3-liter rated at 260 horsepower.

Sadly the new X3 will not be available with a manual transmission. The only transmission will be an eight-speed automatic.

While the X3 will launch with gas-engines only, the automaker’s Joe Wierda said a diesel version could make sense. Currently, BMW’s only diesel offerings in the U.S. are the X5 xDrive35d and 335d. BMW is under pressure to improve its corporate average fuel economy ratings, since its old scofflaw approach of paying fines for not making CAFE is counter to the increasingly green consciousness of its buyers.

Production of the new model moves from Graz, Austria, to the company’s U.S. manufacturing plant in Spartanburg, South Carolina. BMW spent $750 million on a plant expansion for the X3.

The 2011 X3 grows in length by more than 3 inches to 183 inches. BMW made room for the increased size by bumping the length of the X5 by 8 inches when it was redesigned this year. In fact, the new model is now about as big as the original X5.

Wierda said that the new model will be a better value than the current one with added standard features including Bluetooth, iPod connectivity, keyless start and Xenon headlights. The current X3 has a base price of $39,125 including destination. The base price of the new one will likely push that price close to $40,000, maybe more.

The updated styling is marked by creased character lines on the sides and a hood with complex sculpting.

Inside, owners of vehicles across BMW’s lineup will find a lot of familiarity in the X3. It includes soft-touch materials. The car shown in Traverse City had luxurious light tan seats and interior trim.

Wenda said the outgoing model had more of an off-road demeanor that didn’t match up with the needs of the company’s customers.

BMW’s best and most successful line is the 3-Series, which consistently wins car magazine comparison tests. Wenda said the company’s goal is always to bring a little bit of the 3-Series magic into the other cars it builds.

Getting the suspension and interior right from the start will also make a huge difference for the X3.  Expect to see it in showrooms by the end of the year.

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