The new Audi A4 faces real competition from Volvo and -- yes, seriously -- Cadillac.

ONE OF THE paradoxes of the car market in this unsettled economy is that demand for midpriced cars is weak, but sales of luxury brands are soaring.

Why aren't more consumers who purchased expensive cars in the boom years trading down? Here are three reasons.

The redesigned 2002 Audi A4 Quattro, the 2003 Cadillac CTS and the 2002 Volvo S60 AWD all-wheel-drive model are three new entries in the increasingly impressive class of vehicles priced between $25,000 and $36,000.

Each of these cars makes a unique styling statement, and each offers distinctive performance. But competition in this price range is so intense that the amenities you can obtain in all three, either standard or optional, come close to being all the gadgetry, comfort and safety features you could ever want. Automatic climate control: of course. All-wheel drive: Yes on the Audi and the Volvo, and the traction control available on the Cadillac comes close enough. Side airbags: You can get them. The Volvo even has a special coating on the radiator that (and I quote) "helps transform ground-level ozone into oxygen as you drive." Next they'll have an optional system to shine your Birkenstocks.

The impulse to fatten the equipment list reflects the insecurity these three brands feel about the Big Kahuna in this segment, BMW. These cars must woo people who don't like what BMW represents or are scared off by BMW's prices. The trick is to know where and how brashly to draw lines of distinction.

And brash is the word to describe the Cadillac CTS. This car spits in the eye of most of what Cadillac has meant for half a century, and that's mostly a good thing.

First, the CTS isn't that big. Second, the CTS is the first honest-to-goodness fun-to-drive car the Cadillac brand has produced in, well, a really long time.

The CTS is a rear-wheel-drive car in the European sports sedan mold. GM engineers are enormously proud of the CTS's ride and handling, which was tuned on Germany's famous N?rburgring racetrack. And for the first time in eons, Cadillac is offering a manual transmission.

I couldn't get out to the Nurburgring, so I lashed an early edition CTS (built before the cars you can buy) around some back roads in the exurbs of Detroit. The CTS is simply delightful to drive. I had so much fun going through one set of curves I did a fast U-turn in the road (aided by the car's tight turning circle) and backtracked so I could run the turns again.

The CTS's steering is crisp, and you can attack hard curves at speed, thanks to the racetrack-tuned suspension and electronic stability controls. Though Cadillac has decided not to offer all-wheel drive, the CTS's traction controls adroitly kept me out of trouble when I put two wheels off the edge of the pavement in a turn.

The CTS's 220-hp, 3.2-liter V-6 moves the car around smartly. Cadillac's base price for the CTS is $29,990. (All prices include destination charges.) The "luxury sport package," which includes 17-inch wheels, high-performance brakes, load-leveling rear suspension and stability control, adds $3,500. A Bose sound system integrated with a navigation system could tack on another $2,700. A Bose system with six-CD in-dash changer would increase the price by $1,275. Automatic transmission is $1,200 extra. So a well-equipped CTS with automatic and the Bose system without the navigation screen would really sticker at about $35,965.

Here's the bad news. The impressive achievement of the CTS powertrain and chassis gets watered down by the car's interior and exterior styling. The CTS's dashboard is a mess of black plastic, dominated by a bulging center stack that houses a multifunction screen. Many of the convenience functions such as the radio, some interior lighting and onboard navigation are controlled through this display. Maybe if I'd had more time, I would have gotten used to the multiple menus and functions. As it was, I found the computer-like displays distracting.

The car's exterior is so aggressive that it's a bit unsettling. The CTS's sharp, angular fenders and the louvered grille reflect Cadillac's conclusion, reached three or four years ago, that the American products most closely associated with technical excellence were the Stealth fighter and other intimidating specimens of military hardware. Some people will like the CTS precisely because it's edgy and harsh. The look hasn't grown on me, particularly when I see it in any color other than black.

The new Audi A4 is much easier on the eyes, even if it isn't radically different in appearance from its predecessor. The A4 achieves a balance of elegance, simplicity and functionality, particularly in the interior, that the Cadillac doesn't match.

I drove a well-loaded version of the new A4, with the optional 3.0-liter, 220-hp V-6, the five-speed automatic transmission and the Quattro all-wheel-drive system. The base price for the 3.0-liter Quattro is $33,715. Options such as leather seats and the Bose sound system can push the price over $37,000. An A4 with the standard 1.8-liter four-cylinder and a manual transmission starts as low as $25,475. You can also get the 3.0-liter A4 with a continuously variable transmission that links the engine to the front wheels.

Most A4 buyers opt for the Quattro-equipped models, which imposes a slight penalty in fuel economy and adds about 165 pounds in weight. At 3,627 pounds, more or less, the six-cylinder Quattro A4 doesn't feel as punchy as the Cadillac, even though the engine generates a respectable 220 hp. But the A4 is a smooth operator, comfortable for both front and rear passengers and elegantly tailored. The interior of the new A4 is a benchmark for the industryÑexcept for the tiny cupholders. The A4 is Jude Law to the Caddy's Bruce Willis; an Armani suit to the American car's studded leather jacket. To stretch the sartorial metaphor one last inch, let's turn to the tweedy professor of this lot, the Volvo. Actually, the Volvo S60's mission is to make you stop thinking of tweedy professors when you hear the Volvo name.

The S60 AWD sedan is new for 2002 and is targeted directly at the successful Audi Quattro models. The S60 has a chunky, substantial exterior, and the car comes standard not just with driver and front-passenger side airbags but with side-curtain airbags as well.

Under the hood, the S60 AWD has a 2.4-liter, five-cylinder engine that puts out 197 hpÑless than the Audi and Cadillac. But the S60 doesn't feel slow: It provides plenty of torque at low rpms, which moves you off the line with authority and lets you execute passing maneuvers with confidence. Another big plus are the seats. I drove this car 10 hours from Detroit to Dow Jones in South Brunswick, N.J., and was comfortable the whole way. I wish the seats had been removable so I could have used them during my four-hour meeting.

On the downside, the S60 has less rear leg room than I would expect in a car this size (33.3 inches, versus 34.25 for the A4), and the dashboard and controls flashed too much cheap-looking black plastic for a car with a base sticker price of $34,000.

Overall, the winner here is the Audi. It's not as spirited as the Cadillac, and you probably can get a better deal on the Volvo, given the competition in this segment. But the A4 offers the best balance of style and function among these three. BMW shouldn't rest too long on its laurels.