Get the power down! Swapping in an E36 M3 LSD.

Getting a car’s power to the ground effectively through tight corners is one of the greatest challenges in SCCA Solo autocross (or even racing in general). SCCA rules restricting treadwear ratings and tire widths means that you have to make the most of what’s available in mechanical grip. One of the best ways to effectively transmit torque to both rear tires is through a limited slip differential. Unfortunately, my particular BMW 325is E36 was equipped with an open differential from the factory. Let a major project begin!

First, I’m going to be splitting this blog post into two separate posts, one focused on the LSD and another on chassis reinforcement, even though they took place at the same time. There’s just way too much information for a single post.


An open differential provides power to the axle/wheel/tire that has the least resistance, while a limited slip differential (LSD) provides power to both axles/wheel/tires at the same time (ratio/method dependent on LSD type, beyond the scope of this post). One scenario where it’s easy to visualize this difference is to imagine a rear wheel drive car, equipped with an open differential, with one rear tire on ice and the other rear tire on dry pavement. When power is applied, only the tire sitting on ice will spin while the tire on dry pavement will not move and thus the car will not move. The same scenario, but with a car equipped with a limited slip differential, will transmit power to both tires and the car will move forward.


In racing, both autocross as well as all out track, it’s common to see various wheels in the air when cornering. The picture above is of TC Kline Racing’s BMW E36 M3 at Road Atlanta cornering hard at speed. You can see that it’s lifted the right front corner but also imagine the light loading of the right rear corner, even though it’s not off the ground. In an open differential power would be transmitted to that wheel and it would most likely start spinning which means less power to propel the car forward. Not good.

So now that we have the basic principle of open differential versus LSD out of the way, how the heck does one get an LSD into a BMW E36 not originally equipped with one. Luckily it’s pretty straight forward!


Locally tracking down a suitable E36 LSD equipped differential was the first task. To Craigslist! Luckily, living in the Seattle area, there’s a fairly steady supply of E36 differentials commonly for sale, finding the right one is the key.

There are a few things to look for to verify that the differential that you’ve found really is a factory LSD. The first is the tag on the differential housing. In the pictures above, you can see my stock open differential tag on the left, missing the “S” prefix, and the M3 LSD tag on the right, with an “S” prefix. The “S” means “LSD” in BMW’s build process. Also notice that the next numbers on both tags are “315” which denotes a 3.15:1 differential ratio, the same for both differentials.


The next thing to look for is the factory paint stamp found on the differential housing. The picture above shows the faint green “S” paint stamp that you’re looking for. You may have to dig under a bit of grime to find it but do it delicately so you don’t wipe off the mark.

Once you’ve verified that the external signs are present, it’s a good idea to at least remove the drain/fill plugs and peer in with a flashlight to look for gear wear and metal shavings while turning the input flange. Place a hand on one of the axle flanges, to induce drag on the axle flange, and check to see that both flanges are still spinning in the same direction. Also make sure that the axle flanges seem tight in the housing with no slop or side movement. If everything checks out, like mine did, then you probably have a good candidate for a swap. The one thing that’s really still a question mark, and not easy to verify, is if the LSD is working properly and not slipping too much. Just a risk that must be taken!


Nearly all BMW E36 chassis cars use the same rear differential housing and mounting locations, only the input flange and axle output flanges differ. This means that you can take an entire rear differential from an E36 M3 and bolt it into an E36 325is with minimal effort. It’s not necessary to even open up the differential case cover to complete the job.

In the picture above, with the E36 M3 LSD on the left and my stock open diff on the right (very dirty!), you can see the circled parts that must be swapped.

Both differentials are standing on the input flange where the driveshaft mounts to the differential. The M3 input flange has six mounting holes in it while my 325is input flange has only four mounting holes. A single large diameter nut holds the input flange in place, with a crush sleeve underneath the nut that sets pinion shaft preload (for proper gear engagement). I quickly determined that swapping the input flange would require two things that I didn’t have, an air impact gun and the right thin wall socket. This is the only time so far that I would need outside help and just dropped off both differentials at my local European auto repair place after speaking with the auto tech about the plan. He also swapped the axle flanges and said it was real easy after just slightly prying on them. That was $30 well spent in my opinion!


Now that I had the E36 M3 LSD back, with the correct flanges on it from my stock differential, everything would bolt up to my 325is’s stock driveshaft and axles shafts (as seen in the picture above). Note that in the picture above, my entire rear subframe is missing.

Once everything was back together and new Mobil 1 gear oil installed, I was finally able to get the car out on the road and see if the LSD really checked out. At turns where my inside tire used to just spin uselessly, my car now kicks out sideways and a nice drift takes place with both tires spinning. No weird noises, grinding, bumps, etc. Everything looks to check out great!

This was a project that required a lot of research, a good bit of disassembly, and some hopes that everything checked out in the end. However, I think it’s crucial to have an LSD installed in order to get the most out of a track car (if the rules allow it). Check another box on the list for this BMW E36 SCCA STX build!

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