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BMW Z3 - Model Range
Background
Modern BMWs have always come with a wide range of engine options and the Z3 is no exception. The eight valve M43 cars just don't have the fizz to exploit the car whilst the S54 3.2 //M version is downright scary fast. Because it's so low and open the //M version with it's stunningly good engine is intoxicating in a way few other BMWs can match.

Early Z3 1.9 in the Alps with wheels I quite like.
Initially only the M44 1.9 was available and in my opinion this is the most rewarding to drive. After a few years the 2.8 M52 was offered and it's fine car but euro/UK cars with the aluminium block have better weight distribution as a result, important in such a light car. The UK never got the 2.5 in either M52 or M54 form.
The 2.8 M52 was always strangled by it's intake manifold and was designed to be torquey rather than a high revving beast. It's a fine engine but the later M54 3.0 certainly moves the game forward and makes the Z3 3.0 a real driver's car. But those are a little rare as they were only sold at the end of the production run and high prices reflect their desirability.
The UK waiting list for the Z3 was well over a year for the first few years of production, I gave up in the end. This was a hugely popular car and demand massively outstripped supply.
It's worth mentioning that four cylinder cars had solid rather than vented front discs but with the same diameter. They still work really well but won't have the fade resistance of vented brakes. An upgrade to vented discs is a simple bolt on using E36 parts. This was just penny pinching by BMW.
Automatic Z3s are missing the point of the car unless you're commuting in silly traffic.

Facelift 2.2 Z3 Sport.
Facelift
The first change for the Z3 was the rear wings. Early cars had a more rounded design but this was replaced with a more muscular form with a higher shoulder line. These are bolted on so can be swapped if you so desire.
1999 saw the major facelift and coincided with the launch of the E46 three series and it's new M54 engine. So the M54 replaced the M52TU but sadly the excellent M44 was killed off with no 16 valve replacement. BMW marketed the 2.0 M54 as the 1.9 M44 replacement but it was a very different car at heart.

Later tail lights, optional ugly spoiler and broad shoulder rear wings.
A tiny handful of M43 1.8s had been sold at the start of production in Germany but in 1999 the 1.9 M43TU came in as the new base model. This really wasn't a suitable engine for a small sports car and should be avoided. It's not quite powerful enough and lacks the eagerness of the M44 to rev. It starts to struggle and run out of power just where the M44 comes on song in the rev range.

Optional later style sports seats, note round centre console clock.
Facelift UK cars are easily spotted by the side marker lights in the corners of the front bumper. At the same time the rear lights were changed to a stepped design. For the interior the centre console went to round dial instruments and had the option of sports seats that were a bit over the top depending on your taste. Some of the later interior colours are horrid.

M43TU 1.9 litre 8 valve engine.
M43 1.8 and 1.9
Any other manufacturer would be proud of the M43 and it was certainly a step forward from the poor M40. But in a sporty BMW of this generation it really wasn't up to the job and should never had found its way into the Z3. The 1.8 was used on a very small number of cars and I suspect they were only sold in Germany.
The 1.9 M43TU, recognisable by it's black plastic intake manifold, came in from the 1999 facelift. BMW had dropped the M44 at the end of E36 production but the M43TU was sold in early E46s.
This 8 valve engine was about 20bhp down on the outgoing 16 valve M44 but the real difference was in the character of the two engines. The M44 thrived on revs whilst M43 was more of a mid-range animal. Even in a town car it just lacks the fizz of the superb M44. The last of the E36 Compacts had the same issue.

M44 1.9 litre 16 valve engine.
M44 1.9
The M44 is the follow on the lovely M42 and in my opinion is one of the best engines BMW ever made, it's just a damn shame they didn't make it a 2.0 or 2.1 (Schnitzer and Hartge did). It thrives on revs and is a joy to drive. As it's a four cylinder it sits further back in the chassis helping the handling accordingly. But it's a steel block so not that much lighter than a six cylinder car (those had alloy blocks except in the USA).
In the Z3 the M44 has a very convoluted air intake. The airbox breathes through a pipe that runs along the top of the radiator and goes all the way to the other side of the car. A cold air intake from the fog light solves this nicely but puts the air intake lower than I'd like. In our cold Scottish climate putting a few holes in the outer edge of the airbox does just as well. The factory airbox will flow better than a cone filter.
The M44 was always under tuned from the factory and a good rechip on a rolling road will release quite a bit of power. The only time my M44 car ever felt out of puff was on the long, steep climb up to the Glenshee ski centre.
It's worth mentioning DASC at this point, the Dowling Atlanta SuperCharger. Because BMW took so long to release a six cylinder car after market tuners had a field day, Alpina and Hartge made 170bhp stroker 2.1 litre engines. DASC was supercharger kit that could lift the M44 above 200bhp and was quite popular in the USA. A DASC car is a real find these days.
Early Six Cylinder Cars
It took quite a while for a six cylinder model to be produced, partially because BMW was struggling to make enough Z3s to satisfy demand in it's new South Carolina factory. When it came the M52 sold in 2.5 (from the E36 323i) and 2.8 forms, the 2.5 wasn't sold in Britain.
Whilst a good engine the M52 had lots of torque but horsepower was stifled to conform to German insurance groupings unlike the M54 which replaced it. Fitting the earlier M50 manifold to an M52 can add around 30bhp if done well. The M52 had an alloy block so was light, ideal for the Z3. But US cars kept the iron block to cope with high sulphur levels in their fuel.
In late 98 the M52TU replaced the M52 and brought double VANOS and a different intake manifold to the party. It had the same peak power but a better torque curve.
These cars had a front bumper with a deeper centre section and a thinner lower lip. It was also used on some later M54 cars.
There's nothing wrong with the M52 and it's a strong engine in the great BMW six cylinder tradition. It's just that in a small roadster I personally like to work the engine into the corners and rev it hard, the M52 isn't that sort of animal. Having said that anyone with a Z3 2.8 won't be disappointed.

M54 2.0 six cylinder 24 valve engine.
Late Six Cylinder Cars
In 1999 BMW replaced the M52TU with the excellent M54 and ditched the M44. The M54 was sold in 2.0, 2.2, 2.5 and 3.0 capacities with a range from 150 to 231bhp. It's more of a rev monster than the M52 and suits the Z3 better as a result. Final drive ratios in the smaller versions were specified to make best use of the power available whilst the 3.0 had the tallest 3.07:1 ratio fitted to any Z3.
The 3.0 went to larger 300mm E46 330i front brake discs which is a nice bonus. Pretty sure these need 17" wheels to clear them.
The "bread van" in the UK, "clown shoe" in the US.
Coupe
The Coupe is a love or hate it design, I like it. It gives the Z3 a lot more rigidity and that helps it handle the power of the might //M engines it was blessed with. The car has a dedicated page.
2.8 and 3.0 coupes were sold in left hand drive in the USA and europe but sadly there was no right hand drive non-//M version.

//M roadster euro with S50 and six throttle bodies.
Z3 //M Roadster and Coupe
The //M cars in europe got the wonderful six throttle bodied full caffeine S50 and S54 engines. But in the early cars out colonial cousins had to make do with the single throttle body US S52 engines. I've been in a US E36 M3 and loved the engine, but there's no denying the power difference at the upper end of the rev range. Later US cars had the full euro M3 S54 engine and are worth a king's ransom as a result. All M cars had the five speed gearbox as the six wouldn't fit the chassis. See the //M cars page