Ive often wondered how the car (an 88 300e) senses the octane of gasoline while running? The idea seems to be that there is a chip that retards spark, insuring less damage from low octane fuel; is the spark always "retarded" or does it only "kick in" if it senses low octane?

If it kicks in, how can it sample so much fuel in so little time? it seems impossible. If the sprak is permanently retarded, whats the point of high octane gas in a north american benz?