You may have heard some horror stories about exhaust pipe threads being destroyed when replacing an oxygen sensor (O2 sensor). And most of them might be true. These sensors tend to almost weld to the pipe due to the high temperature under which they operate. Still, installing a new oxygen sensor in your BMW Z3 is not that difficult if you follow a good strategy. And you can take care of the problem now without blowing your BMW maintenance budget.
Drive your Z3 for about 20 minutes on the highway to bring the engine to operating temperature then park your car. This will let you unscrew the oxygen sensor without possible damage to the threads on the exhaust pipe.
Shift your transmission into neutral.
Lift the front of your Z3 with a floor jack, set your car on two jack stands, chock the rear wheels with two chocks and apply the parking brake.
Put on goggles and crawl under the vehicle. Follow the exhaust pipe connected to the exhaust manifold to the catalytic converter. You will see the O2 sensor mounted on the exhaust pipe right before it connects to the converter. The sensor is a small cylindrical component, about the size of a spark plug, with an electrical connector attached to the end.
Unplug the oxygen sensor electrical connector.
Unfasten the oxygen sensor with a ratchet and a 7/8-inch (22mm) oxygen sensor socket.
Coat the threads of the new sensor with anti-seize compound; this will help you unfasten the sensor without much difficulty next time you need to replace it. Be careful not to touch the sensor's tip with the compound, though, or you may cause damage to the probe element.
Install the sensor finger-tight. Tighten the sensor to 40 foot-pounds with a torque wrench and the 7/8-inch (22mm) oxygen sensor socket.
Plug in the oxygen sensor electrical connector.
Raise your Z3 off the jack stands with the jack then lower it to the ground.
Remove the chocks from the rear wheels.
If you come across a stubborn oxygen sensor that refuses to come out of the exhaust pipe, apply penetrating oil and follow the product directions on the package.