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When the engine is cool or even at normal operating temperature, the fan clutch partially disengages the engine's mechanically driven radiator cooling fan, generally located at the front of the water pump and driven by a belt and pulley connected to the engine's crankshaft. This saves power, since the engine does not have to fully drive the fan.
However, if engine temperature rises above the clutch's engagement temperature setting, the fan becomes fully engaged, thus drawing a higher volume of ambient air through the vehicle's radiator, which in turn serves to maintain or lower the engine coolant temperature to an acceptable level.
Mechanical fans are most common in trucks and SUVs, and some RWD cars. This is easier to accomplish because the engine is mounted longitudinally, with the belt accessory components mounted facing the radiator. The fan is mounted on the crankshaft pulley or one of the accessory pulleys (e.g. the water pump pulley) and will spin in between the radiator and the engine, drawing air back through the radiator and blowing it over the engine. Even though the air has been heated by passing through the radiator, it is still much less hot than the engine surface, so the airflow over the engine helps with cooling.
In contrast, in a front-wheel drive vehicle, the engine is usually mounted laterally, with the crankshaft and typically all the major accessory shafts parallel to the front axle, so as to directly drive the transaxle; a fan mechanically mounted on an accessory pulley would blow sideways and would not face the radiator. This is why electric engine-cooling fans are used virtually universally in front-wheel drive vehicles. The conversion of mechanical energy to electricity and back to mechanical rotary power with a fan motor is less efficient than a direct mechanical connection, but this is more than compensated by greater control of an electric fan through electronic thermostatic controls which can turn the fan completely off when the engine temperature is below the setpoint.
Most fan clutches are viscous or "fluid" couplings, combined with a bi-metallic sensory system similar to that in a thermostat. Some clutches are electronically controlled (instead of bi-metallic strip). These provide the potential to control the level of engagement depending on any number of inputs. Common controlling factors might include engine oil temperature, transmission oil temperature, coolant temperature, AC system pressures and ambient air temperature.
A fan clutch is as reliable as any other component on a vehicle, yet sometimes they fail. A common symptom of fan clutch failure is overheating at idle or in heavy traffic. Bad fan clutches can also cause poor performance of the car's air conditioning system because the fan also cools the air conditioner's condenser, which is directly in front of the radiator. A fan clutch can also fail in a stuck on position where engine power is lost even when the fan is not necessary. This type of failure can also decrease fuel economy.
Another potential symptom of fan clutch failure (always drawing air at a high rate) in a cold weather climate is that the fan / engine sounds excessively noisy and fuel consumption increases. You may find that the heating system blows lukewarm air never delivering sufficient hot air but as this is also controlled by the cooling system thermostat it's not the best indicator.
Another symptom is an extra (abnormal) grinding sound from the engine area, which may be caused by worn bearings in the fan clutch.