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At one time, automatics lagged far behind manual transmissions in terms of fuel efficiency. Though the design had been around for some time, it wasn't until fairly recently that lockup torque converters were standardized on production cars to address the problem.
History
Packard introduced the first lockup converter in 1949. The design was soon adopted by Borg Warner for its transmissions, but it didn't become commonplace until the mid-'80s.
Fluid-Coupling Inefficiency
Non-lockup torque converters use only an engine-driven turbine to push fluid through a transmission-side turbine for power transfer. Due to the internal leakages caused by this "fan-pushing-a-fan" arrangement, older torque converters could never transfer more than about 90 percent of the engine's power to the transmission.
Lockup Advantages
Lockup torque converters use a series of internal clutches to lock the engine and transmission together at certain speeds, similar in principle to a manual transmission. This allowed automatics to achieve nearly 100 percent efficiency under cruise, netting an average 8 percent to 10 percent fuel efficiency increase across the board.
Engagement
Converter lockup usually occurs in a transmission's top two or three gears and almost always in overdrive.
Lockup Failure
Converter lockup failure can be recognized by a shudder under cruise and overheated transmission, both of which are usually preceded by a marked drop in fuel economy.
Source:
Chevy High Performance Magazine
Resource:
How a Torque Converter Works (Video)
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