Ford Motor Co.’s Mustang, at risk of losing the U.S. muscle-car sales race for the first time since 1978, is rolling out a smaller, more powerful V-6 engine that increases fuel efficiency.

The new 3.7-liter engine generates 305 horsepower and can travel 31 miles per gallon of fuel in highway driving, said Barb Samardzich, Ford’s vice president of powertrain engineering. The current 4-liter V-6 creates 210 horsepower. That engine gets 26 mpg on the highway, according to research firm Edmunds.com.

General Motors Co.’s Chevrolet Camaro debuted in April and has outsold the Mustang in the U.S. each month since June. The Camaro may take the lead in annual sales next year, said Jeff Schuster, an analyst at researcher J.D. Power & Associates.

“We’re looking at an old-fashioned, heavyweight battle,” said Schuster, who is based in Southfield, Michigan. “It will be a real close fight.”

Ford is introducing the 2011 Mustang on Dec. 2 at the Los Angeles Auto Show. The automaker expects the more efficient engine to increase Mustang sales, because fuel economy is why a third of potential buyers reject the car, said Steve Ling, Ford’s car marketing director, at a Nov. 10 briefing.

“Now I can say we have totally addressed that,” he said at the event in Dearborn, Michigan, where Ford is based.

The Mustang-Camaro competition is mostly about image and bragging rights, because sports cars make up just 2 percent of U.S. auto sales.

Going After Camaro

Even so, the Mustang has been in Ford’s lineup since 1964 and is an important model that the company intends to defend from new competition, Ling said. He attributed Camaro’s sales success to pent-up demand since GM revived the car after halting production in 2002.

“We’re aiming to go after the Camaro,” said Dave Pericak, the Mustang’s chief engineer.

The new Mustang engine puts it just ahead of the 304 horsepower for the Camaro’s 3.6-liter V-6. Ford’s fuel- economy estimate of 19 mpg in city driving and 30 on the highway for the Mustang V-6 compares with 17 mpg and 29 mpg for the GM model, according to Edmunds.com, which is based in Santa Monica, California.

The 2011 Mustang with the new V-6 will start sales in next year’s first half. Ford hasn’t yet revealed its price, Samardzich said. The 2010 V-6 Mustang starts at $20,995, while a Camaro with that engine size begins at $22,680, according to the companies’ Web sites.

GM said the majority of Camaros are sold with V-8 engines that get 426 horsepower, more than the Mustang’s 315-horsepower V-8. Ford said Mustang sales are divided evenly between the larger and smaller engines.

The V-8 Camaro starts at $30,745, while the Mustang GT with a V-8 begins at $30,995, according to Edmunds.com.

“We’re going to do everything we can to stay on top,” said Adam Denison, a spokesman for GM’s Chevrolet. “This car does get good mileage. It’s a budget-friendly sports car.”