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One primary concern with applying an AWD system to a front wheel drive (FWD) vehicle architecture is the additional weight and drag associated with the AWD drivetrain components, resulting in an increase in fuel consumption compared to FWD-only models. Therefore, Honda recently developed a next-generation integrated AWD unit that reduces weight and drag loss, and increases the SH-AWD cornering performance while maintaining the performance requirements of the previous rear drive unit. These targets were achieved primarily through the application of hydraulically-actuated clutches and an increase in the “speed-increasing ratio”. This paper describes the development, system validation and future technology implications of this recent advancement.