I've got a 1987 740 GLE Wagon (non-turbo) with an electric overdrive and 170k miles on it. I leave the overdrive engaged (light on instrument panel off) all the time. The transmission goes through all gears fine, except overdrive. This problem started about four weeks ago after a tune-up (distributor cap, spark plugs replaced). When the vehicle is cold, the rpm's have to get up quite high (3000+) to get the transmission into overdrive. When the engine/transmission are at normal operating temperature it usually shifts into overdrive okay (I'm sure this won't last long). It shifts out of overdrive fine. I've had the transmission checked by a MAJOR transmission shop. They said the transmission is fine (it's cherry, as they described). They said the engine is bogging down, that's why the tranny shifts late (this only happens in overdrive). I thought it was the overdrive solenoid, but they say it's okay. I just replaced the ECU because the car wouldn't start when it was cold (mechanic said it was firing the injectors to much). This corrected the cold start. What else could be causing the above symptoms? What causes the transmission to shift at the right time. Any info is greatly appreciated.

My theory:

Throttle kickdown cable can hold transmission in a lower gear if a lot of throttle is being applied. This is what it is supposed to do. In your situation if your engine is bogging down you are probably applying more throttle to compensate hence transmission stays in a lower gear.

I had a similar problem when my engine had low power due to failing hall sensor and bad mixture.

If engine is not putting out power fix that first.