In 1981 Lancia began designing the 037 to comply with the then new FIA Group B regulations that allowed cars to race with relatively few homologation models being built. The project was number 037, this eventually became the name by which the car was known. Abarth, now a part of the Lancia-Fiat family, did most of the design work, even incorporating styling cues form some of its famous race cars of the 1950s and 1960s such as a double bubble roof line. Prior to its participation in the 1982 rally season 200 road going models were built to comply with Group B regualtions. The car made its competition debut at the 1982 Costa Smeralda Rally in Italy. Two cars were entered by both retired due to gearbox issues. The 1982 season was plagued with retirements for the 037, but it did manage to achieve several wins including its first world rally win at the Pace Rally in the UK. The 1983 season was considerably more successful with the 037 winning the Championship with Walter Röhrl at the helm despite serious competition from the 4WD Audi Quattro. For 1984 Lancia introduced an Evolution 2 model which featured improved engine power, but this was not enough to stem the tide of 4WD competition, losing to Audi in the 1984 Championship and again to the 4WD Peugeot 205 T16 in 1985. Midway through 1985 the 037 was replaced in the Lancia factory rally car line up with the Delta S4 which featured 4WD and a unique turbocharged and supercharged motor.
The Lancia 037 was silhouette racer. While it was loosely based on the Lancia Monte Carlo (also known as Scorpion in the US and Canadian markets) road car they shared only the center section with all body panels and mechanical parts being significantly different. Steel subframes were used fore and aft of the production car center section, while most of the body panels were made from Kevlar. The mid-engined layout of the Montecarlo was retained, but the engine was turned 90 degrees from a transverse position to a longitudinal position in order to decrease the vehicles polar moment and improve handling. An independent double wishbone suspension was used on both the front and rear axles, with dual shock absorbers in the rear in order to cope with the stresses of high speed off road driving. The 037 is notable as it retained the rear wheel drive layout that was nearly universal for rally cars of the pre-group B period, nearly all subsequent successful rally cars used 4WD making the 037 the last of its kind.
Unlike its predecessor, the V6-powered Lancia Stratos, The first 037s had a 2.0 liter 4-cylinder supercharged engine. Based on the long stroke twin cam which powered earlier Fiat Abarth 131 rally cars. The head was switched to a four valve design and the original two carburetors were replaced by a single large Weber carburetor in early models and later with fuel injection. Lancia also chose a supercharger over a turbocharger to eliminate turbo lag and improve throttle response. Initially power was quoted at 265hp but with the introduction of the Evolution 1 model power jumped to 300 with the help of water injection. The final Evolution 2 model produced 325hp thanks to a displacement increase to 2,111 cc.
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