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Here is a possible answer... (archive)

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Posted by vdphb on October 24, 1999 at 01:35:11:

In Reply to: Bad MPG indicator on 5 speed ? posted by Totem on October 24, 1999 at 00:45:02:

The discrepancy in fuel economy when slowing via coasting in gear vs. in neutral could be attributed to the following:

First of all, I know from my experience w/ a 525i, that the owner's manual says that the fuel consumption gauge is only accurate above about 12 mph.

Second, because of emissions and fuel economy requirements, modern engines have a mode in their fuel injection called "overrun". What this means is that when a vehicle is coasting to a stop in gear, fuel injected into the cylinders is miniscule, if at all because it is the crank that is actually causing the cylinders' movement. BMW's fuel economy indicator supposedly isn't dependent only on throttle position. It theoretically measures the actual amount of fuel being used by the fuel system instead of throttle position. Now if the car is using hardly any fuel while coasting in gear due to "overrun" mode as opposed to "idling" while coasting, this explains why fuel economy can be higher while the vehicle is in gear and slowing.

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