I have a 87 740 witch had the same OD shifting problem... Here is my solution:
My 1987 740 did not want to switch into the 4th gear, according to the book either the overdrive solenoid or the overdrive relay is the problem. According to Volvo, one is $230, the other is about $50 or so. I never used this feature, to my best knowledge I never had the need not to allow the car to switch into the 4th gear….. so why do I have to spend money to fix it. Unfortunately the default is the not to switch, if everything is working properly then it can switch.
Okay, on the left upper side of the tranny is the overdrive solenoid. I removed it. The solenoid has 2 small hole, it either allowed tranny oil between the holes, in this case the overdrive solenoid is activated, the tranny can switch into the 4th gear, or blocks the oil flow between the 2 holes, in this case it is deactivated, the tranny can not switch into the 4th gear. Meaning, if I can ensure that between the 2 holes there is oil flow all the times, (i.e. if I can bypass the solenoid) then the tranny can switch into the 4th gear, and I do not have to spend any money neither on a new overdrive solenoid, nor on an overdrive relay.
If one is looking the overdrive solenoid face plate (the surface which is facing the tranny) as I described it has 2 holes. One hole is in the middle, the other is about a ¼ inche away. The center hole is surrounded with a rubber oring, this oring ensures that the oil can not bypass the solenoid, and around both holes there is an outside oring, which ensures that oil is not leaking between the overdrive solenoid and the tranny.
I removed both orings, took my Drammel tool, and carved out a small groove between the 2 small holes. (about 0.04” wide x 0.04” deep or a bit bigger) One has to be very careful, not to scratch or carve the faceplate anywhere close to the outside oring’s groove; otherwise the oil will leak between the solenoid and the tranny. After the carving I cleaned the solenoid, cut its wire! (it is not needed any more) replaced the outside oring, and reinstalled the overdrive solenoid.
The tranny is switching to the 4th gear like a charm, the car works perfectly. I think that the overdrive relay can be thrown away as well, since it does not switching anything any more.
Effort: It took about 3 hours of work, $0!!!!
I hope you guys can utilize this technique to fix trannys which do not want to switch into the 4th gear provided that you do not need the feature which is blocking the tranny to switch into the 4th gear. If you guys need any clerefication because of my English please email me at gabehauer @yahoo.com. I will make some digital pictures as well, since one picture is equal 1000 words. You guys saved me many many times, Im happy to give something back. Happy bricking, Gabriel. Owner of 2 740s and 1 960.