Sometimes overlooked, though not by real BMW enthusiasts, are the 1987-1991 BMW 325i and 325is 3 series models. These mainstays of the E30 3 series lineup are tremendous cars in their own right, and generally low prices, great real-world performance possibilities, durability, and aftermarket support make the cars powered by the 2.5 liter 168 hp BMW M20 SOHC 6 cylinder engine a great buy. The M20 is the 'baby six' derived from the M30, the 'Big Six' that was developed in the 1960s and saw duty in many BMW models up to the E34 535i. The M20 first saw action in 2.0 liter form in the E21 BMW 320/6 and then as a 2.3 liter engine in the E21 323i, making 121 and 143 hp. The E30 3 series BMW premiered in the US with 2 engine choices; the 101 hp M10 1.8 liter 4 cylinder and the 121 hp 2.7 2.7 liter M20 6 cylinder 'eta' engine.
Forget about those cars for now. Let's talk about the later M20 2.5 'i' cars. If you drive one of these BMW's, you don't need to look lustfully to the original M3 for great performance. The 87-91 325i and 325is need only a few basic modifications to be a better street car than the M3. The 'i' E30 3 series cars usually have a 3.73 rear differential. Swapping to a 4.10 limited slip differential will wake the car up in a big way. Those who do a lot of highway driving might wish to compromise with a 3.91 differential from a 325ix. Despite the 2 valve/cylinder head design, the M20 2.5 power delivery is surprisingly peaky, so the more aggressive differential really lets the engine shine. A differential swap, and chip (I like the Jim Conforti/Turner Motosports/Mark chips best) are the best 2 first performance mods for these cars. This engine really requires intelligent modification for further HP/TQ/power delivery improvent.