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The Subaru Impreza WRX is much cheaper and delivers as many - if not more - thrills

AUDI continues the tradition of applying what seem to be stupendously high prices to its smaller cars with the latest S3 version of its Corolla-size "3" models.

Like the more mundane A3, the S3 is based on the same platform as the Volkswagen Golf. It uses a full-blown 1.8-litre turbo engine winding out 154kW and driving through the same four-wheel drive system as used in the Bauhaus-styled TT Quattro coupe.

The S3 has a generous power to weight ratio, allowing Audi to claim acceleration figures that place it securely into the high-performance bracket. The factory claim of 6.8 seconds for the dash from zero to 100km/h has it running with the likes of BMW's M3, adding the bonus of extra stability provided by the four-wheel drive system.

The silly thing is that the same, or better, can be bought from Subaru for around $30,000 less, in the shape of the Impreza WRX. Nissan's rear-drive 200SX coupe also makes a strong argument, again for substantially less money.

So what is it about this accomplished but expensive three-door hatch that Audi hopes will attract Euro sports car buyers - buyers who could spend just $3000 more and have themselves a two-wheel drive Audi TT, complete with more road presence and a decent share of the S3's road-going ability?

Well, for starters, the three-door body at least looks a little more personalised than regular A3s, which went to five doors late in 1999.

And there is the fact that underneath the floor lies the same basic drivetrain as used in the top-of-the-range TT quattro coupe - right down to the stability control system only recently adopted by the TT. The only real difference is a drop in power - down from 165kW at 5900rpm to 154kW at 5800rpm - and torque, which is lowered from 280Nm at 2200rpm to 270Nm at 2100rpm.

The small torque loss - and the slightly lower rpm at which the maximum is developed - helps keep the three-door honest. Both TT quattro and S3 weigh roughly the same, so there's no effect there, although the hatchback's slightly higher centre of gravity does influence handling to some degree.

With the quattro all-wheel drive system, the S3 takes on a new life if the road surface is rain-slicked or loosely gravelled. Audi arranges the driveline so that under normal conditions it operates as a front-wheel drive, feeding power progressively to the back wheels the moment slip is detected at the front end. A hydraulic multi-plate clutch installed between the propeller shaft and the rear differential exerts needed torque to the rear axle within one-eight of a turn of the drive shaft.

On top of this, the S3 picks up Audi's electronic stability programme to look after the driver who inadvertently oversteps the mark.

On the road, none of this electronic brainwork is detectable to the driver, who is aware only that the S3 never feels as if it's about to break loose. Put the power down on a wet road, or any other condition where there's a shortage of traction, and the Audi simply surges forward.

The S3's rear suspension is different to A3 models, too. Rather than the familiar torsion beam layout used across VW Golf, Audi and Skoda models, the S3's rear end is the same independent, trailing arm, double wishbone layout used in the TT quattro.

The 20-valve, 154kW engine feels and sounds muscular, launching the S3 quickly and with minimum turbo lag. The fact that maximum torque begins at 2100rpm helps here, and its ability to maintain that figure right through to 5000rpm ensures there's a steady building of power as it works towards the red line.

The gearbox, also like the TT quattro, is a six-speed, but somehow shorter of throw and lighter to use than the six-speed in bigger brother S4. Audi hasn't been particularly strong on gearshift feel with most of its cars, but the S3 is something of an exception with its smooth, precise feel and relative lightness of action. It's probably as good as the smooth five-speeder used in the base, front-drive TT model.

The six ratios also help make best use of the engine's torque curve, with the correct gear usually available, and provide a reasonably tall freeway cruising ratio.

The S3's ride naturally tends towards firm, but the car is generally absorbent of bumps and comfortable, certainly rating among the better performance cars.

And the brakes, four-wheel ventilated discs with anti-lock and electronic brake force distribution, are entirely appropriate for a car capable of accelerating as hard as the S3.

One clear identifier from outside is the use of 17-inch alloy wheels, of the same dimensions as the S4, or the TT quattro. Shod with 225/45 tyres, they endow the S4 with massive grip.

Completing the image is a tiny spoiler neatly tacked onto the car above the rear window, widened wheel arches, specific front and rear bumpers and a twin-pipe exhaust outlet - all very subtle, but calculated to suit the restrained tastes of the Euro hot-car buyer.

As far as the interior is concerned, here at least the driver can see where the money is going. The seats are Recaro, leather trimmed and very supportive, and there are the appropriate touches of wood grain distributed tastefully throughout. Surprisingly, the seats only have minimal electric adjustment, covering fore-aft, cushion recline and cushion height.

Still, there's plenty of adjustment for tall drivers and the wheel can be set for both reach and height. The driving position feels more comfortable than the bigger S4 model. In the back, well, it's the usual story of accepting the fact you're occupying what is really only a small car and some give-and-take is usually needed to accommodate four people with comfort. Surprisingly, the S3 lacks a centre rear armrest, although the seat back is at least split-fold to maximise loading opportunities.

Otherwise, all the gear to be expected is there in the S3, from the Xenon headlights to a quality Bose sound system with six-disc CD player, climate control air-conditioning, trip computer, cruise control and one-touch electric (front) windows. But considering the price, it was something of a surprise to note that a power sunroof remains optional, as does metallic paint.

Audi clearly does not expect to sell a heap of S3s - it's too expensive and too exclusive a small car to do that - but those able to experience the pleasures of ownership will rarely regret their decision. Pricey or no, the S3 is one very fast, very competent small car.