When did BMW hire Goldilocks as a product-development consultant?

The last few cars from the Bavarian automaker’s legendary M performance division could be absolute bears: raw, difficult to drive and overpriced.

The 2008 M3 sedan, on the other hand, is just right.

The latest M car is as docile and cuddly as a stuffed teddy bear in day-to-day driving, but it becomes a curve-devouring grizzly on the open road.

That’s a welcome change from BMW’s recent M5 and M6 models. They were blindingly fast on the highway but suffered from balky automatic transmissions poorly suited to other roads.

The M3’s price also hits the sweet spot. The M5 and M6 face little direct competition and start at $82,900 and $99,600, respectively. The 2008 M3’s sticker reflects the aggressive pricing of the beautiful new Audi S5 coupe and the power and accommodations of the upcoming 2009 Cadillac CTS-V sedan.

BMW has dominated the high-performance compact sedan and coupe market since the first M3 went on sale in the United States in 1988.

That changes in 2008. The Audi has a more elegant design and offers more room than the M3 coupe, while the CTS-V offers 38% more horsepower and the passenger and luggage space of a midsize sport sedan.

In response to that new competition, BMW gave the base M3 sedan an attractive $53,800 sticker.

Prices for the M3 coupe start at $56,500. A hardtop convertible M3 that goes on sale shortly will sticker at $64,950. All M3 models come with a free-revving 4.0-liter V8 engine that produces 414 horsepower and a taut six-speed manual transmission.

An intriguing seven-speed dual-clutch manual transmission that goes on sale shortly will be a $2,700 option.

I tested an M3 coupe with a few cosmetic options and a sticker price of $60,750, including a $1,300 gas-guzzler tax courtesy of the car’s 14 m.p.g. city/20 m.p.g. highway EPA rating. All prices exclude destination charges.

The M3 I tested cost more than a better-equipped Audi S5 that stole my heart earlier this year, but the BMW’s superb handling and 60-horsepower advantage justify the premium, if only barely.

In addition to the $50,500 S5 and the ‘09 CTS-V — for which pricing has not been announced — the M3 competes with cars like the $55,150 Mercedes-Benz CLK 550 coupe and $56,000 Lexus IS-F sedan.

All the cars require premium gasoline. Like the M3, the 354-horsepower S5 and CLK500 are subject to the federal gas-guzzler tax. The 550-horsepower 2009 CTS-V will be, too, when its fuel-economy numbers are released.

The IS-F, which has 416 horsepower and a unique eight-speed automatic transmission, escapes the tax.

The M3 features an all-new 4.0-liter V8 with direct gasoline injection and variable valve timing. The V8’s 414-horsepower output of more than 100 horsepower per liter is exceptional for an engine that’s not turbo- or supercharged, and the 90-degree V8 revs smoothly all the way to its stratospheric 8,400 r.p.m. redline.

The engine produces 295 pound-feet of torque at 3,900 r.p.m. with at least 250 pound-feet all the way to 6,500 r.p.m. for strong acceleration at all speeds.

A “power” button on the center console speeds the throttle response and reduces power-steering assist for sporty driving. The power mode feels a bit touchy driving around neighborhoods, but the car is extremely manageable in normal mode.

The six-speed manual transmission has short, sporty throws between gears and a precise feel.

The M3 clings to the road, holding flat, steady and secure at high speed through winding curves. The suspension also absorbs bumps well.

An optional adjustable suspension provides three modes: comfort, normal and sport.

Another optional package, which includes BMW’s dreaded iDrive rotary controller for navigation and other systems, includes a programmable button the driver can set for his or her preferred combination of throttle response, suspension damping, steering effort and stability control.

The steering is quick and precise, providing excellent feedback through a thick, lusciously leather-wrapped sport steering wheel.

The rest of the interior in the M3 I tested was businesslike and subdued. The fabric-covered seats are comfortable and hold their passengers firmly.

Front shoulder room is a bit snug. Rear head and legroom are minimal, but the trunk offers a useful 15.2 cubic feet.

The front seat could use more storage bins for gadgets like mobile phones and iPods.

The M3’s exterior has a clear-coated carbon-fiber roof that reduces the car’s weight and lowers its center of gravity to improve handling.

M badges on the fender vents are a traditional M3 touch, but the new model gives them an attractive twist with a swept-back look as the vents run horizontally from near the front wheels toward the doors. The hood has two mesh-covered cooling vents on either side of a large power bulge.

The power bulge strikes me as a gratuitous touch on an otherwise sophisticated shape, but perhaps some owners want their M3s easily recognizable by cops in roadside speed traps.

Goldilocks is running with a fast crowd these days. The M3’s power and handling put it atop its class alongside the prettier S5, but with the new IS-F and CTS-V looming, the M3 should keep an eye open for prowling bears other than Smokeys with radar guns.