PARIS – PSA Peugeot Citroen hopes to get an 18-month jump on its global rivals by using compressed air to hybridize small cars cheaply.

A skunk-works team began four years ago on “Project Ghost,” an effort to create a new technology that would give PSA a competitive advantage.

It built its first car employing the same hydraulic components that Airbus uses to adjust the wing flaps. The design worked well enough that France invested in development of the technology and PSA formed a tie-up with Robert Bosch, with €2.5 billion ($3.3 billion) of hydraulic sales annually.

The partners have developed four generations of their Hybrid Air powertrain so far, and this week they revealed to the press, suppliers and the rest of the company the third generation, keeping the most-advanced design behind closed doors.

The third-gen powertrain uses a 1.2L gasoline engine, a unique transmission that PSA won’t describe, and a hydraulic system that compresses air quickly to 2,175 psi (150 bars) during energy recuperation, then uses that energy to add torque to the front wheels for acceleration.

The cost of the system per gram saved is less than half that of an electric hybrid system, says Karim Mokaddem, executive manager of the project.

The energy available, 0.04 kWh, is equivalent to just 1.2 oz. (35 ml) of gasoline, Mokaddem says. Alone, it would propel the car only several hundred meters in a totally zero-emission mode.

But in city driving, where speeds are constantly rising and falling, air power is used 60%-80% of the time. Braking energy is captured more quickly and delivered to the wheels in less time than with an electric hybrid, he says.

The result is a robust technology PSA says will give a B-class car fuel efficiency of 69 g/km of carbon-dioxide emissions (the equivalent of 81 mpg [2.9 L/100 km]) and can be sold for €15,000-€20,000 ($19,500-$26,000). PSA’s 3-cyl. gasoline engine with a standard transmission in a car like the Citroen C3 achieves 104 g/km CO2.

PSA has homologated one prototype at 72 g/km and driven it 12,400 miles (20,000 km).

With gasoline power, the auto maker intends to sell the cars around the world. Unlike electric-hybrid technologies, Mokaddem says, it is simple, relying on mechanical elements that are well-known industrially.

Power is distributed to the front wheels. The east-west gasoline engine is on the right side and the transmission, with the reversible hydraulic pump, on the left. During braking or deceleration, the pump compresses air in the longitudinal high-pressure accumulator tank running down the center of the vehicle. During acceleration, the air pressure drives the pump to add torque.

Electronics make the process invisible to the driver. A low-pressure reservoir tank in the rear of the vehicle holds the hydraulic fluid when it is not in the accumulator.

The system efficiency is about 85%-90%, similar to an electric hybrid, says Etienne Pigot, the technical leader on vehicle adaptation for Project Ghost.

PSA says the system is about as fuel-efficient as a Toyota Prius III plug-in hybrid, which costs about €37,000 ($49,000), and as inexpensive as a 68-hp Peugeot 208 diesel that emits 88 g/km CO2.

“No one else is in this area,” says Guillaume Faury, PSA’s chief engineer.

Bosch’s Bernd Bohr, a member of the board of management, says his company is the world leader in mobile hydraulics, providing systems to off-road vehicles on farms, in mines and equipment building roads and dams.

“It is exciting to bring this technology to volume cars,” he says. “It is a worldwide application. It is cost-efficient, robust and service-friendly. So it is applicable to emerging markets.”

Other auto makers have investigated the idea, including Chrysler, which is working with the Environmental Protection Agency, and Ford, which presented the F-350 Tonka concept pickup with hydraulic launch assist in at the Detroit auto show in 2002.

Ford more recently has been working with Folsom Technologies and the Center for Compact and Efficient Fluid Power on an F-150 that could get 40 mpg (5.9 L/100 km).

Mokaddem says the secret to PSA’s success in moving the technology from research to development is its integrated architecture.

“Ford is using a parallel-hybrid approach, and ours is series,” he says. The software overseeing the different power sources, blending them together transparently and starting and stopping the internal combustion engine, is critical to making the Hybrid Air acceptable to customers.

PSA’s approach is aimed at B-segment cars, with engines up to 82 hp, and C-segment cars with engines up to 110 hp, as well as light-utility vehicles.

For larger cars in Europe, Mokaddem says, PSA will rely on its diesel hybrids. Faury notes that in 2012, the market for hybrids in Europe was 145,000 units and PSA held a 14% share, second behind Toyota’s 70%.

PSA is losing money and share as its main markets in southern Europe have collapsed, but it has kept up investment in the Hybrid Air project.

CEO Philippe Varin says PSA’s research and development activity is based on finding new technologies that give the auto maker a competitive advantage. He also notes PSA’s announcement of its partnership with Bosch happened on the 50th anniversary of a French-German agreement to end centuries of competition.

France invested in the project through a program for Investments for the Future. Francis Loos, president of the French research unit ADEME, says Hybrid Air “will help the French industry gain share in other markets.”

Much of the CO2 savings from the system will come from running the gasoline engine at its most efficient speeds, with the hydraulics providing the boost at inefficient times such as when the vehicle is launching from a standstill.

Pigot says internal-combustion engines are 10%-37% efficient at converting fuel to motion depending on load, and that in city driving the efficiency is typically only about 15%. By counting on hydraulics to help acceleration, the vehicle’s transmission can have very long ratios to improve efficiency at highway speeds, he says.

Together, the Hybrid Air powertrain with a 1.2L engine has the same dynamic performance as a 1.6L engine, Pigot says.

The next step, Faury says, is to industrialize the technology, aiming at a launch in 2016. Bosch and PSA’s captive supplier, Faurecia, have been involved in the development and presumably know what they need to do to prepare volume production of their parts, but other suppliers only now are learning of the project.

PSA will build the transmission itself. Pigot says it is neither a standard automatic transmission nor continuously variable transmission, but offers no details.

A major development area still needing work is noise control. The hydraulics have “a signature sound, like a tramway,” Mokaddem says, and engineers are working on how to make the sound acceptable to car buyers.

PSA executives skirt the question of whether General Motors was aware of the project as part of the alliance between the two companies.

“In 2012, we presented three joint projects with General Motors,” Faury says. “This is 2013. We will see what we can do together. The thing is open.”

Other auto makers may be working on hydraulic hybrids, Mokaddem says, but he believes PSA has a lead of 18-24 months.

“We don’t have a specific objective for share of the hybrid market,” he says, “but it would be major.”