BMW Classic digs into the archives to highlight the often-forgotten BMW 3 Series Compact from the E36 generation. The hosts even get to check out the one-off M3 hatchback, which is the real star of this show.

While it found success in Europe, Americans weren't quite as keen on the vehicle. Small hatchbacks have never been the most popular segment in the country, and even by mid-1990s standards, the 138-bhp output was modest.

Gallery: BMW M3 Compact (E36)

BMW rectified the lack of power in Europe by offering the 323ti with a 2.5-litre inline-six making 168 bhp.

The M division saw the performance possibilities from putting a more powerful engine in the three-door hatch, and the team built a single one as a proof of concept in 1996. Under the bonnet, there was the S50B32 3.2-litre inline-six with BMW's double VANOS variable valve timing system for both the intake and exhaust sides. This mill was good for 316 bhp.

Beyond the extra power, the M team updated the interior by adding single-piece, carbon-fibre sport seats. The steering wheel rim, gearshift, and handbrake received Alcantara covering. There were also quad exhaust pipes with a pair of outlets coming out of each side of the rear.

The result was a vehicle that weighed 150 kilograms less than an E36 M3 coupe. It was also 23 centimetres shorter than the two-door, which created a more nimble machine by putting less mass behind the rear axle.

Unfortunately, the execs at BMW never gave the M3 Compact a green light for production. Still, it's nice that the company is hanging onto the prototype rather than destroying the vehicle to show what could have been.