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The O2 sensor (oxygen sensor) measures the amount of oxygen present in the exhaust gas. For proper combustion to occur, you need 14.7 grams of air per 1 gram of fuel. The car has sensors to measure the amount of air flowing into the engine, and can take a pretty good guess at the amount of fuel going into the engine, so it can do a pretty good job of keeping the air to fuel ratio around the 14.7:1 mark. When the engine is cool or under heavier load, that's what it does (it may even run rich, or more fuel than needed, for extra power). Once the engine warms up, and you're cruising, it will go into closed-loop operation. At that point, it uses the O2 sensor to sense the amount of oxygen in the exhaust, and fine tune the amount of fuel going in. If the O2 sensor is not working, it can't do this fine tuning. So long as it stays close to 14.7:1, you're ok. However, if it starts wandering, you can have problems. Too rich and your catalytic converter can destroy itself. Running rich will release a lot of unburned hydrocarbons (fuel) because there isn't enough oxygen to burn them. Those will go into the catalytic converter, which will do its best to get rid of them, but the better job it does there, the hotter it will get, and could melt. You'd likely have problems with any emissions testing. Plus, your gas mileage will suffer. On the flip side, if you drift lean (not enough fuel), your exhaust temperatures will rise (unless you go way to lean, in which case you may start misfiring) and you might get your cat (or your engine) too hot, with obvious consequences. The extra heat and oxygen will allow the formation of increased levels of nitrous oxides (another emission problem). The only good side to this is that running lean can help your fuel economy (assuming everything else in your car can handle it). So yes, a malfunctioning O2 sensor can damage your car.

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Q: What does and O2 sensor do and will it damage car if not replaced?
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