Why the vertical differential?

can’t the differential be made parallel with the road instead of perpendicular? it’s a small thing to be sure, but it would provide additional clearance, and provide a better appearance to the under carriage.

Because the ring gear has to be perpendicular to the drive axles. The drive axles are parallel to the road.

Just making it smaller is and has been a goal for a while and is commendably done in a lot of cars. Eventually, individual motors on each wheel will get you to that pretty rear end.

In addition to what Keith said, the ring gear has to be a certain size to encircle the case that carries the planetary and axle spur gears. And they each have to be big enough to contain teeth of enough substance to carry the loads involved. Perhaps the attached drawings will help you understand what’s contained in a differential.

http://www.bing.com/images/search?q=rear+axle+differential+drawing&id=130F8C687E145324A89EA49610725320DC2B44E0&FORM=IGRE4#x0y954

I found a better “exploded view” drawing for you. This one is from a FWD car, so the teeth on the ring gear are oriented differently, but it provides a good immustration of what’s contained in any regular differential.

http://tijil.org/Scion_Docs/05_tC_Shop_Manuals/Repair%20Info/Repair%20Manual/Manual%20Transmission-Transaxle/Differential%20Case%20Assy%20(E350)/conponen.pdf

In a RWD vehicle the entire assemblage you see will be contained in an outer houseing, often called the “pumkin”. The shaft out the tranny drives the ring gear, and the ring gear rotates the Front Differential Case. The Front Differential Case Via the Front Differential Pinion Shaft causes the Front Differential Pinions to orbit, pulling the Front Differential Side Gears along with them. The Side Gears turn the axles. If you’re turning, and the axles have to turn at different speeds (the arc length will be different), the difference is taken up in the Front Differential Pinions.

There really is no simpler way to configure a rear end to enable the two shafts to turn at different speeds while still transferring power. Personally, I think it’s one of the most ingenious solutions to anything I’ve ever seen. But it does require that the Ring Gear be perendicular to the axles and large enough to turn the whole assemblage.