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In the past year, the U.S. auto industry has reeled under market pressure, faced bankruptcy, accepted billions of dollars in government bailout money, and agreed to mandates for cleaner and more efficient vehicles. But for two brothers from Colorado with an automotive start-up company, things couldn’t be better.

Levi Tillemann-Dick, 28, and his brother Corban, 24, are carrying on a dream they hatched with their late father, Denver inventor and businessman Timber Dick, to bring to market a radical new engine design that is much more efficient than a traditional internal combustion engine.

The four-stroke engine used in gasoline-powered cars today was a breakthrough when pioneers like Nikolaus Otto and Gottlieb Daimler developed the design in the 1870s and 1880s. But its operation is so inefficient that only 20 to 30 percent of fuel in the tank is converted to energy that actually makes the car move. The rest is lost, mostly as heat.

The Tillemann-Dick brothers believe that they can ramp up that efficiency to 50 percent by shifting from a piston-driven engine design to an “internally radiating impulse structure” that expands and contracts like the iris of an eye. They believe their start-up company based in Washington, D.C., IRIS Engines, has an advantage in efficiency and engine power as a result of this unique design, and can benefit from the forces roiling an auto industry currently based on piston-driven engines.

An efficiency drive

In the United States, federal regulators last month finalized a rule that will require automakers to achieve an average fuel efficiency of 35.5 miles per gallon by 2016. The European Union has set a goal that is the equivalent of about 48 miles per gallon by 2017, and Japan has set comparable goals, says Levi, who serves as IRIS Engines’ chief executive. Efforts to address global warming by putting a price on carbon emissions, although currently facing an uncertain future in the U.S. Congress, could raise the bar even higher for automakers. “All of these people, in order to maintain the performance and utility characteristics of their vehicles, are looking hard for new solutions to efficiency and power density,” Levi says.

IRIS Engines is one of several start-ups that are focusing on better engine design. Venture Capitalist Vinod Khosla, a co-founder of Sun Microsystems, has made high-profile investments in two companies working on boosting engine efficiency, Transonic Combustion and EcoMotors.

The Tillemann-Dick brothers also have gotten Silicon Valley recognition—last year winning a $100,000 investment prize from venture firm Draper Fisher Jurvetson (the funders behind Hotmail and eBay.) However, they declined an investment offer from the firm—Levi says only that the pair felt it wasn’t the right deal—and they continue to work on attracting funding.

Visually, the IRIS engine is a stunning departure from a piston-driven engine. Six gates form a tight circle when closed and then pivot open when a mixture of fuel and air is ignited. One IRIS can replace a four-cylinder engine. Because it uses the walls of the chamber (the gates) as a working surface, rather than the floor of the chamber (the head of the piston), the engine increases its working surface area from about 25 percent to more than 70 percent.

“Starfire” was the name first proposed for the engine by Timber Dick, listed as lead inventor together with his sons on the company’s patents. In 2008, the design beat out more than 1,000 entries to capture first place for transportation technology in NASA’s “Create the Future” annual design competition. But a month prior to the awards ceremony, Dick died in a car accident at the age of 52. Two of his 11 children, Levi and Corban, made the decision to take up his work.

The patented design has since won competitions such as the ConocoPhillips Energy Prize and the Dow Sustainability Prize. The company’s chief technologist is Simon Pitts, who has had a long career in power-train development and research for Ford. Eric Ridenour, who was chief operating officer for Daimler-Chrysler from 2005 until 2007, is on the IRIS Engines advisory team, as is Daniel Yergin, chairman of the consulting firm IHS Cambridge Energy Research Associates and author of the Pulitzer Prize-winning history of the oil industry, The Prize.

Up against inertia

But the auto industry is not known as an early adopter. Think Buckminster Fuller’s 1933 Dymaxion car with its high fuel efficiency, three wheels, and aerodynamic design, or GM’s abandoned 1990s foray into electric cars.

John Heitmann, an automotive historian and University of Dayton professor who wrote The Automobile and American Life, says that crash cells, fuel injection, and antilock brakes all were developed in Europe after World War II when the American industry had little incentive to change.

“Initially, there was a lot of innovation in the auto industry in [its] first two decades but by the early 1930s the industry became mature and technological stagnation set in,” he says. “Not body styles—that wasn’t stagnant—but what was stagnant was the entire power train configuration . . . They were left behind by their own hubris.”

Marcis Jansons, an assistant professor of mechanical engineering at Wayne State University and researcher at the university’s Center for Automotive Research, sees many roadblocks for the IRIS engine.

“I think they’re facing a reciprocating engine that’s been around for a long time with a long history of refinement,” he says. “Any new, revolutionary, or radically different design is going to have to have a similar evolution.”

In addition to competition from other designs, such as the effort to incorporate electric power into vehicles, Jansons says that improvements are always being made to the traditional internal combustion engine. “The target is not stationary. It’s being refined and made better and has a proven track record,” he says.

The Tillemann-Dick brothers are aware of the challenges. They don’t expect to replace the piston engine in a Ford or Toyota overnight. Corban, IRIS Engines’ president, says the company is looking into how its engine might play a role in some of the technology evolution now taking place. One possibility is that the engine could act as a “range extender” for hybrid-electric vehicles.

Cars are not necessarily the “break-in market,” says Levi. “Internal combustion engines are in everything from chain saws and compressors to water craft and outboard motors,” he says. “There are two major benefits that go along with the design. One, efficiency—the green angle—gets people excited. But the other benefit is the ability to have much higher power density in a really small package – something the size of large thermos that puts out about 200 horsepower.”

The brothers have met with engine manufacturers as well as automakers and a large operator of fleet vehicles in hopes of a joint development deal. “A lot of people are enthusiastic about the design,” Levi says.

Nonetheless, Heitmann says he sees a host of issues facing the IRIS, such as integrating the engine into a vehicle and whether it can be mass-produced at a low enough cost. At the same time, he says, automakers are making strides on electric and plug-in electric hybrid vehicles and are not necessarily interested in finding a new type of fossil-fuel engine.

“That said, I think these guys couldn’t have picked a better time,” says Heitmann. “This is one of the most dynamic times in the industry, and the industry is now open to new ideas. Eight years ago no one would have cared.”