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Has your mechanic ever done a 940 head gasket? I think that doing a head gasket on your car is more straightforward than many cars. You might try elsewhere for an estimate.
You do not mention how many miles on the car, a new water pump may be a good idea.
As for heat - our '90 745 TI would run the electric fan in 5 minutes of idling in the winter. Twenty minutes of warm up is silly. At idle, the engine does not heat up well. All of our Volvos ( 4x740s, 3x850s, and 2 Xc70s produced heat in about a mile and a half of gentle driving - I live in northern MA)
Install a new thermostat when you do the gasket.
I cannot think of any 3 grand car that I would rather slide off the road with.
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