Welcome to my E46 Differential site. I created this web site in response to the growing number of questions about the effects of changing the final drive ratio on a car. The site concentrates on differentials from standard E46 cars, no M3s. Also, this site is geared towards E46 cars equipped with manual transmissions. E46 cars with automatic transmissions come with higher final drive ratios. This makes them not as practical to swap out the final drive to a higher ratio and really high ratios are hard to find in the US.
Changing the final drive ratio on a car is common upgrade to give you more torque by mechanical multiplication. Ratios are expressed as input:output. For a 3.46:1 ratio, the input would rotate 3.46 times for every time the output rotates once. The higher the ratio is, the easier it is for the drive axle to turn the wheels. Your ratio can only be so big before you start to hit some diminishing returns. Going with a higher ratio translates into higher engine rpm's to maintain the same speed as your original ratio. How does this effect you? Firstly, a drop in fuel economy since your engine spins faster to maintain the same speed. Secondly, top speed drops. Thirdly, going with an super aggressive ratio will result in more gear shifting. On a E46 323i, going from a stock 3.07:1 rear end to a 3.46:1 rear end will result in 3 gear shifts to get to 60mph vs. 2 gear shifts with the stock ratio. Well.. with all these negatives, what do you gain? Faster acceleration!
The ratio you choose for your car depends greatly on the type of driving you do. Software to increase your redline to 7000 rpm's also helps negate some of the side of effects of shorting your gears. If you're trying to make your car sprint to 60mph, a 3.38 with software upgrade is probably the highest you should go. Have a 5spd transmission and concerned about hwy fuel economy? 3.15 is a good ratio for 328/330s to give you a little extra without drastically changing your gearing. Though, this doesn't help 323/325s that already come with higher ratios. 323s and 325s need to jump to at least a 3.38 or 3.46 to see a significant change to make a gear ratio change worth it.