The first 1Z and then AHU diesel engines in the Mark III Tdi had significant differences to the engine as well as the injection. Tdi means Turbo Direct Injection. This means the fuel is now injected directly into the cylinders instead of a prechamber. This avoids the heat loss from the explosion starting inside a steel prechamber, and also makes them quieter and easier to manage fuel. The fuel injectors changed from 130 bar to 230 bar, and became two stage. The building fuel pressure from the fuel pump first causes an initial puff that begins to burn. Then the main volume is injected, burning very efficiently. The fuel pump on the front of the engine acquired electronic controls for fuel volume and timing. The fuel pump can vary the injection volume within one hundredth of a milliliter for each cylinder for each turn of the engine. The start of injection timing is also that precise. Now we are talking some very efficient motors compared to the early cousins. And we see the Mark III Tdi as the start of the truly reliable diesel engines.
The new Mark III Tdi piston is made entirely of a new alloy that takes the brute forces of a high boost diesel explosion indefinitely. The combustion chamber became an odd shaped pocket in the top of the piston that helped lower the dynamic force deeper into the piston and control the tendency to sway and twist as the piston descends. The pistons are so strong that whenever a timing belt breaks and the valves hit the pistons (gulp!), it does not even dent the pistons.
Another aspect of having the combustion chamber mostly in the piston is the increase in efficiency due to changes in thermal transfer. Start with the consideration that only around 20% of the energy of a given fuel is rendered as power. The other 80% is dissipated as heat. About half of that goes out the tailpipe. So of the 40 +/-% of the energy that is dissipated as heat to the engine, most goes to the coolant, some goes to the oil, and a small amount goes directly to the air. Virtually all of the heat transferred to the head goes to the coolant, and the thermal transfer from the aluminum to the coolant is pretty good. Most of the heat transferred to the pistons goes to the oil spray inside the crankcase. The thermal transfer from alloy to oil is rather slow compared to coolant, which is one small reason that the pistons operate hotter than the cylinder head, friction accounts for the rest. This slower thermal transfer to oil makes a tiny increase in amount of the total energy that is converted to power instead of heat. Every little bit helps.
The turbocharger was not a new thing, yet, but it was on every engine instead of being an option. It was necessary not just for power and efficiency, but also to make the emissions low. The maximum boost pressure was still low, and the motors had to rev up a bit before the pressure really started. Turbocharger boost pressure control was done with electronically controlled manifold pressure opening the wastegate, which looked like a toilet seat.
An intercooler was added to the intake system to reduce intake air temperature. This improves air density, and thus the amount of oxygen per liter of air. The intercooler was mounted in the right front corner. The tubes were long and added to the total intake volume between the turbocharger and the motor. This increases turbo lag, or the time it takes the turbocharger to spool up in rpm, also called boost lag.
The glow plugs improved, but still had a relatively short life span. They were also used for burn efficiency when the fuel mixture got rich during acceleration. The electrical harness for the glow plugs was not particularly hardy, as the wires were a bit small. The glow plugs worked in pairs and were monitored by the engine computer for failure.
A major advantage to any turbocharged motor is the ability to maintain high power even at high altitudes where the air becomes thin. Normally aspirated engines loose about 25% of the compression by the time they ascend to 6000 feet of altitude. This is why non turbo cars are slugs at Lake Tahoe, they have lost nearly 25% of the power they had at sea level. A turbocharged engine does not care about thin air, it only cares about the boost pressure in the manifold, and it just spins faster to keep the pressure up as well as possible. There are many other variables to these equations, but are beyond the scope of this discussion.
The earlier cardboard headgasket was replaced in the Mark III Tdi engine with multi layer laminated steel gasket. This eliminated the seepage problem and made a blown headgasket a very rare occurrence. The AHU engine saw smaller valve stems and guides, reducing reciprocating mass.
The exhaust system gained a catalytic converter to reduce Hydrocarbons (HC) and an exhaust recirculation system (EGR) to reduce Oxides of Nitrogen (NOx). The first year Passat also had a fuel injector mounted in the front of the cat to warm the cat up for efficiency, almost like a modern CR diesel regen system. But it proved to be a somewhat useless waste of fuel and a possible fuel leak at the fuel line junction, and was abandoned.