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How the 2nd gear shifts in a two speed transmission
The gears in the 2 speed transmission use centrifical force to shift. So once you get going fast enough they'll automatically shift into second. When you slow back down first will automatically kick back in. You'll know that it shifted because you'll hear the engines rpms drop just like in a real car. You can also adjust for the shift point (using the screw at the bottom of the clutch), incase you want second to engage earlier or later. Baisically when you're running your car eventually you'll go fast enough to where the little arm swings up and then the tab on the second gear hits it and it becomes engaged. When you slow down the arm folds back down and the tab is no longer caught on it and then you'll be back in first gear. The magic of which gear is driven by the engines clutch bell is solved using a One Way Bearing (OWB) in the centre of the first gear.

There are two screws at the bottom of the 2 speed clutch, a centre screw and an off-centre screw. The centre screw should be tight as the is the screw which holds the 2 speed clutch in place. The off-centre screw is the screw which is adjusted to change where 2nd gear engages.

To get 2nd gear to engage early, loosen the set screw. To get 2nd gear to engage late, tighten the screw.

If you tighten the screw to tight, then you will never get 2nd gear. Of course too loose and the grub screw (and spring) falls out and gone forever. As a rough guide, the factory setting for the gear screw is around 1-2 turns in from flush. However as the clutch gear is a mechanical device, making adjustments to get the 2nd gear setting right is very much a trial and error process and may take several sessions to work it out.

Finally if you still can't get 2nd gear then there a number of options you can try to solve the problem. First you will need to remove the two speed transmission and take out the clutch. Then perform the following checks as an example:

1) Check that the clutch is installed correctly, ie the swing arm should come out and engage the 2nd gear tab,

2) Check and clean all gears including the clutch as sand and grit may be present,

3) Remove the off centre grub screw and internal sping and check that the spring is not damaged,

4) Check that with the grub screw and internal sping removed that the little swing arm moves freely (WD40 is good here)