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hopefully this can be of some help. having an early car myself with the same motor I had to learn a lot about these cars .
1st . replace the coolant sensor with an oem one. pull back the boot on the connector itself and follow the wires a good 3 inches or so . cali cars were fitted from the dealer with some sort of resistor in line that causes all kind of rich issues. pull the resistor out and connect the wires like they are supposed to be from factory.
That little extension for the AFM is part of a recall for a problem with the purge system. The fix was to add an extra harness that would open the purge valve at certain temperatures and AFM openings since the stock setup was found to not work properly. This added harness has caused problems in the past, so some have done away with it (but the evap system won't ever purge then.)
I did away with mine on the m30b32. I haven't noticed a bit of change whatsoever. It connects to a rectangular relay at the fuse box, which splits into two other relays.
The socket for that relay has two wires jumped to the main relay (the 5-pin one), as well as being inserted into the relay socket. I've seen some also attached to the purge valve relay and some that send a wire to the TPS. Basically, it's a harness that runs to the AFM. Your AFM plug plugs into the harness, then the harness plugs into the AFM. The idea, along with a resistor spliced into the CTS wiring (which again, only some have) was to smooth out the idle on the 533i.
So, you can remove that entirely. You'll need a tiny screwdriver to remove the terminal in the main relay socket, etc. The harness is grounded to the main ground point on the intake manifold. Have a magnet handy, as you don't want to drop the bolt that grounds all of your injectors (I've done it at night in a parking lot).
Also, you'll find the car will run much better and much more smoothly. You'll also notice a 2-3 mpg increase in economy. I did with my car.
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