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From Popular Mechanics...

MDS MAKES FOUR FROM EIGHT
The whole point of this exercise was primarily to explain and demonstrate the 2005 Hemi's new Multiple Displacement System (MDS) in an enlightening manner more fun than your average Powerpoint presentation.

We got to see the four solenoid valves--mounted directly to the engine block down in the valley of the V8--that disable cylinders 4 and 6 (the two inners on one bank) and cylinders 1 and 7 (the two outers on the other bank) under light engine loads. This switch-over is totally transparent to the driver, because the V4 operation utilizes even 180° firing intervals. The only thing the driver feels is joy when he calculates how much less fuel he's using on a long drive. Chrysler says the Hemi in the 300C sedan is rated for 25 mpg on the highway.

Here's how MDS works: There are four special 2-piece roller lifters for the cylinders that get disabled. The two pieces are concentric--there's an inner portion surrounded by an outer sleeve. The two parts are locked together by two spring-loaded pins when the engine is in 8-cylinder mode and all the pushrods are operating their valves normally. Under light loads, however, the engine management computer signals each solenoid valve to open and apply high oil pressure to its respective exhaust- and intake-valve lifters. This action forces the two pins in each disabling lifter to unlock the two concentric parts. (To help minimize oil contamination, there’s a magnet at the bottom of each solenoid unit to collect ferris debris.)

Now, the outer sleeve continues to follow the camshaft lobe, but the inner portion of the lifter just floats. This results in no pushrod movement, so the valve springs keep the valves closed. Spark and fuel for the respective MDS cylinders are shut off, and now the engine is in 4-cylinder mode.

http://www.popularmechanics.com/automotive/new_cars/1266926.html?page=3
 

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That is the best write up I have seen on MDS! :TU: Thanks for posting, Matt! Here's a little more rep! :D
 
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