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Is this bad for the tranny?
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Everything I have seen on here would indicate that this is not a problem for these trannies!! In fact I think these are about as close to a manual tranny as about any auto gets until the electronic controlled ones. Not many cars I have driven will allow moving the shifter from "3" to drive under load without some flare or maybe a lot.
At one point I considered using the 4-speed out of the old 220 to convert the 300D to manual, but after several years of ownership I doubt that it will ever happen.
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I also use S a lot to pull big hills, kind of like overdrive (that's what it is, right).
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Actually overdrive would be nice but that would be a fifth gear with a lower numerical ratio than one. Overdrive is used for cruising on 'level ground' to lower the engine RPM.