This work reviews the differences in fuel economy between two direct injection diesel engine versions through the use of a First Law energy balance and a Second Law availability balance. Both experimental data and simulated results are used in the analysis. The use of an engine simulation allowed the important processes in each engine to be analyzed and a Second Law effectiveness calculated. The availability balances and effectiveness values were used to determine the effect of major engine components on the fuel economy. A comparison was also made with an ideal engine with selected perfect or reversible processes. The Second Law analysis was carried out using the thermodynamic property availability and a chemical and thermo-mechanical dead state appropriate for diesel engines. The results of the analysis show the sources of the irreversibilities and availability losses during the engine cycle and what engine components are responsible. It is also shown that Second Law effectiveness calculations provide a consistent framework for the comparison of process losses. The procedure can be used to compare process losses occurring within a given diesel engine, or to compare cycle or process losses occurring in different engines.