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If NJ is strict about the visual inspection, then you're sortof stuck. The '78 has a cat right? If so, toss out the merged header idea and maybe the cam/ration rockers. Head work may help a little, same with mild displacement increase. Or you could look into getting a custom motor smog certified ala California's CARB. That'd probably be alot of headaches and paperwork but may well be worth it if you want serious grunt. Another thing I just thought of would be to take a T4 motor out of a similar year car (baywindow bus) and modify the cooling system (DTM), exhaust (you'd be breaking new ground adapting a cat equipped bus exhaust to your 'vert), etc. but the engine swap *should* be completely smog legal and with an extra 40 to 50 ponies to boot!
If NJ is only concerned about the test numbers, you could easily build a healthy T1 or T4 with fuel injection that should pass without problems - heck maybe even a carbed engine. FI will be a higher investment (time and/or money) and you may still have to run a cat (usually the main thing they look for even if they don't do a strict visual inspection).
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Brian
73 Superbeetle
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