Let's get this invention on the road

Around the world the giant car makers are pouring billions of pounds into designing the latest models. But it has taken a small, British hot-house developer to come up with potentially one of the most significant innovations in the motor industry.

The Torotrak transmission system, the brainchild of the patent licensing group BTG, changes gear automatically without the use of a clutch, solving one of the motor industry's last unconquered technological problems. BTG claims it costs one-fifth less to produce than a normal automatic transmission, uses at least 15 per cent less fuel and, according to those allowed a test ride in prototype cars, gives an unbelievably smooth ride. So much so that the company is introducing an artificial lurch to remind drivers when they are racing up a hill.

Transmissions, the parts on the underside of a car that we never see, are, crudely, what makes the engine drive the wheels. The area has been a graveyard for technological advance despite years of research effort. Engineers have long understood that fixed speed gearboxes are inefficient. To optimise fuel consumption drivers must be skilled enough to match engine speed with the car's speed, using the gears.

In theory, the solution should be continuous variable transmissions (CVT), with an infinity of gear ratios. But despite decades of research there have been few successes. The best-known CVT, and still something of a joke in the motor world, was the infamous Daf, Holland's only independent car maker until its takeover by Volvo in the mid-Seventies.

Launched in the 1950s, the Dafodil (later abbreviated to Daf), used rubber bands in its transmission, which became legendary for high-pitched whirring noises and delayed acceleration. In the 1980s car giants such as Ford and Fiat developed the idea using steel belts which expanded or shrank as the speed changed.

According to BTG, Torotrak's so-called infinitely variable transmission (IVT) looks quite different, using discs and rollers to dispense with the clutch. For the first time the engine is directly connected to the wheels, dramatically improving efficiency. A car with Torotrak can be driving at 60 mph, but at such low revolutions that the engine is effectively idling.

Though no car company has yet committed to produce a car fitted with Torotrak, Ford, Toyota and Getrag, which supplies BMW with transmissions, have all signed licences with full production in mind. General Motors should be next to sign.

Ian Harvey, BTG's chief executive, predicts that Torotrak could become the industry standard by 2010: "Fuel efficiency and low production costs are crucial to car manufacturers. And Torotrak gives the same handling as current cars. No other system has all that."

The potential of Torotrak has not been lost on investors. Since BTG was floated at pounds 40m two years ago, its value has risen almost 20-fold. Some overexcited observers even estimate that Torotrak alone justifies BTG's current pounds 705m market valuation.

Shareholders should not underestimate the difficulty of persuading the conservative car market to adopt such a radical new product. Maurice Martin, Torotrak's chief executive, admits that car manufacturers are formidably tough customers.

He tells of painstaking instructions from one licensee to position the transmission at a precise distance from the engine casing. "We spent so much time and effort getting it just right. In the end, the distance was too big. They told us to readjust it by hitting it with a hammer. We had to grit our teeth," he laughs. "But no car maker wants even the remotest risk that they will have to recall their vehicles."

Funding is another concern. BTG, yet to make sustained profits, is having to invest huge sums in research and in kitting out the factory at Leyland in Lancashire. Torotrak has cost more than pounds 10m to develop so far and will not be in production in a car before 2001. Half of BTG's recent pounds 25m placing proceeds are allocated to Torotrak to fund two years' research, yet, as Mr Martin admits, Torotrak's appetite for cash is growing.

That Torotrak dominates BTG's valuation also raises a serious issue. BTG is fundamentally a patent licensing group, brimming with more than 9,000 patented inventions. For investors wary of one-product biotechnology companies, BTG has been marketed as a safe and unique way to invest in UK technology. But the innovation has changed that.

As Mr Harvey says: "Torotrak is some 40 per cent of our valuation, which exposes us to the risk of failure. Torotrak is also a development company, taking BTG out of just licensing." The solution, and an option under review, says Mr Harvey, is to demerge Torotrak. Whatever happens, Torotrak's progress is one roadshow to keep watching.