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Why, exactly, couldn't they give the 135i an LSD?
I can see why BMW wouldn't want to mess with the name of the famous M1, but they could feasibly just tweak the name a bit so that it's not the same as the old car. 135M? 135 M-Sport? M135? These might violate their anal-retentive naming convention, but it would be a means to an end.
Otherwise, I think you make some good points, especially in regards to the problem that would arise if a potential M 1-series was able to compete with the M3.
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