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I'm amazed that this is being called a "entry-level" car - before the 1 came along, did you call the 3er an entry level car?
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Yes. I've often heard of it called the "baby beemer", "poor man's beemer", "little beemer", "a cute car for dad's to give sorority girls", etc etc.
The 3 series was the entry level BMW. The 1 series has now replaced it as the entry level BMW. BMW can market it in any way they'd like but as long as it says 1xx on the back it'll always be considered "entry level".
The vast majority of the population doesn't track BMW releases and models. Most people know the difference between a 3 series and a 5 series but your average person doesn't know a 328 from a 335. Now, those people that don't know the difference won't be buying the 335 but their opinions will direct the general opinion of the model placement within BMW's line.