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Further justification for turbo engines for Indy cars
Special Report: Energy Efficiency
The Little Engines That Can

Detroit, Mich. - American motorists have long preferred big vehicles, with big engines. The more horsepower, the better. But with gas at $4 a gallon, it's hard to justify buying a car or truck with a V-8, or even a V-6, engine.

To quench that thirst for power, and still meet tough new fuel economy standards, automakers are rapidly switching to smaller, turbocharged engines, which offer plenty of zip, along with better fuel efficiency. The extra boost gives a fuel-sipping four-cylinder engine the power and torque of a V-6, and can make a modest V-6 behave like a muscular V-8.

The shift to downsized engines is partly driven by new U.S. regulations that require car companies to achieve a fleetwide average of 35 miles per gallon by 2020. Manufacturers are dramatically scaling back production of low-mileage V-8 engines. They'll produce about 3 million V-8s in North America this year, down from a peak of 5 million units in 2004. Meantime, four-cylinder engines are becoming more popular in the U.S.

But the downsizing trend, which also applies to diesel engines, has been under way in Europe and Asia for a while. Worldwide, 80% of the new engines developed between now and 2014 will be four cylinder, says Timothy J. Manganello, chief executive of automotive supplier BorgWarner (nyse: BWA - news - people ).

Manganello's company is sitting pretty in the middle of this trend. BorgWarner, with $5.3 billion in sales last year, makes various technologies that improve fuel economy and reduce pollution, including turbochargers, which can boost the fuel economy in a gasoline or diesel engine by 15% to 30%. Diesels, already popular in Europe, continue to grow, and are spreading to the U.S. Meanwhile, production of gasoline turbocharged direct-injection engines is forecast to hit 7.5 million globally by 2013, up from 1.9 million in 2007. "We're in a sweet spot, and it's only getting sweeter," says Manganello.

Turbochargers work by compressing the air molecules drawn into the engine. When that denser air is mixed with fuel and ignited, the resulting explosion produces more energy--which translates into better acceleration and lower fuel consumption at constant speeds.

Turbochargers have been around for years, mostly to give niche performance cars more "oomph." But consumers often complained of engine hesitation, or "turbo lag," along with poor durability, problems that have been solved with today's more sophisticated twin-turbo technology, says Manganello.

Now turbochargers are about efficiency, not power. Ford Motor (nyse: F - news - people ) has made the shift to gas turbo direct-injection engines the centerpiece of its strategy to meet the government's 35 miles-per-gallon mandate. Within five years, it expects to be producing 500,000 "EcoBoost" engines a year in the U.S., and 750,000 worldwide.

The new flagship Lincoln MKS sedan, debuting now at dealerships, will be the first Ford vehicle to offer an EcoBoost engine, in 2009. Eventually, EcoBoost will be available across the Ford lineup, including in SUVs and pickups. BorgWarner will supply turbochargers for the high-volume 3.5 liter V6 engine that will go into many of Ford's rear-wheel-drive cars and trucks, a contract analysts say is worth $100 million. (Honeywell (nyse: HON - news - people ), a competitor, has the contract for front-wheel-drive cars.) Other global carmakers are rolling out similar engines, providing BorgWarner with a pipeline of $2 billion in new business over the next three years.

BorgWarner's strength in turbochargers is fairly new. The company specialized in drive train components until the late 1990s, when it purchased a German turbocharging company called K├╝hnle, Kopp & Kausch. It added a Swiss manufacturer and combined them in 2000. Now, BorgWarner is neck-and-neck in turbocharger sales with Honeywell, once the clear leader.

BorgWarner is a high-growth company in a low-growth industry. North American auto production has been basically flat, and worldwide production is growing about 3.5% a year. But BorgWarner's sales have been growing about 13% per year. Its operating margin is around 9%. The company says 2008 earnings will be between $2.85 to $3 per share, up from $2.44 last year.

It's not all clear sailing ahead, however. Economic headwinds in the U.S. and soaring commodity costs are putting pressure on BorgWarner, as well as other suppliers. Analysts like Joseph Amaturo, of Buckingham Research, are beginning to grow cautious. He lowered his earnings estimate on June 10, based on deteriorating vehicles sales in the U.S.

"The auto sector has a lot of bumps right now," says Manganello, who projects sales growth of 8% to 10% for this year. Forbes.com

[Editor's Note: Champ Car had it right all along.  In fact the Panoz Champ Car is 50% the cost to own and operate compared to the current IndyCar (See related article).  And it's made in the USA and it already has a turbo engine.  So then, if it was a merger as the public was led to believe, why was the Champ Car platform not used instead of the more expensive non-turbo IRL platform?  How dumb is that?]

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