‘Premium downsizing’ is one of the hottest buzzwords in the car industry. The theory is that premium car buyers are willing to either drive smaller cars or drive the same size car with a smaller engine.

The first ‘premium downsized’ car was probably the Mercedes A-class back in 1998. Although technically innovative, the project ran up huge losses for Mercedes. The new-generation A-class will be more conventional under the skin and spawn a wider choice of models.

BMW, fresh from its disastrous ownership of Rover Group, was sure that it would never put its badge on a front-drive car. The 1-series – effectively a downsized 3-series – was probably the smallest a rear-wheel drive car could be.

Indeed, it was christened 1-series to prove that BMW would never build a smaller car, a move backed up by a series of punchy ad campaigns declaring rear-wheel drive to be ‘standard’. Anything else, BMW suggested, was an aberration in a premium car.

So the news that BMW looks set to build its own baby front-wheel drive car (based on the next generation Mini) is a massive about-face for the company. The reasons why are not clear.

Does BMW need to bolster its Mini operation, by boosting the number of cars produced on the (expensive and sophisticated) Mini platform? Does it perceive a real threat from the pint-sized Audi A1? Is the premium downsizing trend more marked than the industry guessed?