In any gear set, one gear is driving and the other is being driven. The technical definition of overdrive is this: If the driven gear is smaller—and therefore spins faster than the driving gear—that is overdrive. If the driven gear is larger—and therefore rotates slower than the driving gear—that is underdrive.
In the early days of automotive design, the engine in a vehicle was located at the front of the vehicle, and the differential / final drive / drive axle assembly was located in the rear. The transmission and a long driveshaft were located between the engine and the drive axle. There are still vehicles that are manufactured in this "classic" way, but most modern vehicles utilize some form of transaxle, which is a combination of the transmission, driveshaft, differential, and final drive (all in one).
In the classic design, the transmission is located between the engine and the driveshaft leading to the rear axle assembly. Its primary purpose is to reduce the rotating speed of the engine's crankshaft, thereby multiplying the torque available at the driveshaft. In other words, the speed of the input shaft of the transmission is always faster than the speed of the output shaft. As engines became more and more powerful, and vehicle speeds increased, overdrive units were invented and placed between the transmission and driveshaft. These units increase the speed of the output shaft of the transmission before it gets to the driveshaft—thus, the overdrive designation. As time progressed, transmissions were fitted with more and more gear selections—rather than a separate transmission and overdrive unit. Early transmissions typically had only two or three gears, plus reverse. Nowadays, it is common for a transmission to have five or six gear selections, plus reverse. The higher gears—5th or 6th—are typically overdrive ratios. Regardless of how it is done (using an overdrive unit or internal gearing), the net result is to increase the speed of the engine's crankshaft before it gets to the driveshaft so that the vehicle can go faster with lower engine speeds. This results in a loss of available torque at the driveshaft, but modern engines are so big and powerful that there is still plenty available to get the job done.
In any drive axle, there is some sort of differential unit and another set of gears called the final drive. The final drive is always underdrive. This last set of gears between the engine and the driving wheels is called a ring and pinion set. The ring and pinion not only provides further gear reduction, but also typically changes the direction of rotation. That is, the driveshaft in a conventional design runs the length of the vehicle, and the rear axle runs side to side. So, the ring and pinion is a bevel/ring type gear set that changes the relatively fast-rotating motion of the driveshaft to the slower-rotating motion of the drive axles, which are oriented at 90° to the driveshaft.
The whole concept of overdrive gets a little more difficult to visualize when applied to a transaxle design. To recap: A transaxle is a transmission, differential, and final drive all rolled up into one unit. The main thing that is eliminated by using a transaxle is the driveshaft. That is, the transmission, differential, and final drive are all combined in such close proximity that the need for a driveshaft is negated. Regardless, there can still be some overdrive gearing taking place in the transmission section of the transaxle. In other words, the shaft connected to the engine—called the main shaft—can spin slower or faster than the shaft connected to the differential/final drive—called the pinion shaft. But, unlike an exposed driveshaft (which you can see spinning faster than the engine), you can't see the pinion shaft, because it is inside the transaxle.
The reason this gets confusing is because the drive axles coming out of the transaxle—which spin at wheel speed—always spin slower than the engine, even when an internal overdrive gear is selected. Indeed, in all Vanagon 4-speed transaxles, 4th gear is overdrive. In all Vanagon and Eurovan 5-speed transaxles, 5th gear is overdrive. Yet, the engine's crankshaft always spins faster than the drive axles, which always rotate at wheel speed.
Make sense?
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