AWD can function in many manners; I will call upon my experience with Subarus to explain two of them. Both involve a center differential. The first method simply makes said differential a limited-slip differential; that is, if the front or rear wheels slip, the differential will lock and power will be shared between all four wheels. The second method involves a computer and a hydraulic center differential. When the computer senses traction loss in the front or rear (this is, either set of wheels moving faster than the other], the computer instructs the hydraulics to transfer available power to whichever wheels aren't slipping. The second method is obviously more effective, but is also more massive and complicated (ie, mote points of failure). There are other methods of driving four wheels, these are but two.

All-Wheel Drive became literally a fad in automotibles in the 1980's. Many automobile manufacturers such as Mercedes (before the Benz), Porsche, Mitsubishi, Subaru and Audi began making AWD offerings to the consumer vehicle market. At the same time, Audi was active in rally racing where AWD is popular and coupled with better engineering, won Audi several races and raised the bar for all other manufacturers involved in rally racing. Most notable 80's Audi rally car was the Audi S1 which Audi made a special rally edition to win the Pikes Peak Hill Climb and they did succeed. After winning the most grueling rally race, except for arguably the Paris-Dakar Rally, Audi has left the rally racing and moved to track racing.

Today, Audi sponsors cars in the British Touring Car Championship as well as the American Touring Car Championship and is at the forefront of the 24h du Mans racing 3 prototype-style cars. Audi enjoyed all 3 cars entered in Le Mans to win the podium spots in 2000-2002. On the consumer end, since the 1980's, only Audi and Subaru have made AWD systems a chief selling point on their cars. All-Wheel Drive has since been banned in certain forms of racing because of it's unfair advantage of increased traction over their two-wheeled competitors.

All Wheel Drive (AWD) is a system in which all wheels on a vehicle are driven, meaning that power is applied to the road (or other surface) through each of them. The benefits of AWD are all derived from increased traction, and include better acceleration and superior road holding, especially when roads are slick.

Besides applying to vehicles with more (or less) than four wheels, all wheel drive is differentiated from four wheel drive (4WD) in that four wheel drive is not meant to be used on a road surface, but only off-road. This is usually because 4WD uses a transfer case to distribute power between the front and rear wheels, and they are both driven at the same rate. Four wheel drive systems generally use lockable front hubs — either manual, or electronic — in order to connect the front wheels to the drive system only when they are needed. In addition, the transfer case can generally be shifted between one of several modes, including one in which power is not supplied to the front axle.

Some AWD systems also utilize a transfer case which in their case contains some type of differential rather than just a gear set, although such designs are in the minority. Most AWD vehicles today feature a transverse-mounted engine, and all of the transfer case's functionality is built directly into the transmission, where a front wheel drive (FWD) vehicle's differential is located anyway. In particular, AWD systems on vehicles which are normally rear wheel drive (RWD) instead of FWD are more likely to use a transfer case, although not all of them do.

While entering or leaving a turn, the sum of the rotational speeds of the wheels at the front is different from that of the rear. Thus, the front wheels will attempt to drive the rear ones (or vice versa) and the result is at minimum chattering gears, and at maximum many broken components not limited to drive lines, differentials, the transfer case, the transmission, or even engine components.

Instead, AWD systems use a differential between the front and rear wheels. This is the same thing used between the left and right wheels on a driven "axle" (pair of wheels, not necessarily a literal axle.) This allows them to be driven at different speeds.

This, too, has its limitations. First, a differential weighs more. Second, if an open differential is used, then if the front wheels are slipping, the rear wheels cannot get any power. The same is, of course, true of the converse. This can be solved either through the use of traction control (TC) systems which utilize the antilock braking system (ABS) to prevent wheels from slipping, or through the use of a limited slip differential (LSD). This adds weight, complexity, and of course cost to the system.

The best AWD systems (such as the latest from Subaru or Nissan) use limited slip differentials in all three locations (front and rear diffs, and the transfer mechanism) and may even use a computer-controlled limited slip. Subarus with VCD (variable center differential) can supply anything from 0 to 50 percent of the power to the rear wheels, with the remainder (up to 100 percent) being sent to the front wheels. This is handled automatically on behalf of the driver, though for competition it may be controlled manually through the use of additional hardware. Nissans with ATTESA-III AWD can transfer all of the power to either the front or rear wheels. Both use ABS-based TC in order to be able to individually control slippage at each wheel.

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