The first thing you need to do is empty the radiator by the drain cock located on the bottom of the radiator. It is on the driver side of U.S. vehicles. You should be able to contain the two gallons of fluid. Next take off the upper radiator hose both ends. the water pump is behind fan clutch. You will need to remove the plastic fan housing, the fan and fan clutch. You will need a large special wrench (1 1/4 inch or metric equivalent) made for the fan nut which is reverse threaded. After you have removed the fan clutch you can remove the thermostat housing. Look at the thermostat and replace being careful to orient it the new one the correct way. There should be an arrow indicating which way is up on the thermostat. Normally there is a pinhole in the thermostat that needs to be oriented up. The water pump is located behind where the fan clutch was taken off. remove the bolts pull the old pump out making sure there are no pieces of it left in the engine block. Install the pump,fan clutch, fan, fan housing and replace all hoses using new hose clamps( you will have to cut the originals off). replace two gallons of BMW approved antifreeze and water wetter and bleed the system via the bleed screw. Note: when you take the old water pump and thermostat housing out you should expect a gush of antifreeze to follow. The fan spins on to the left by hand and there is no need to use a wrench. You should also upgrade to an aluminum thermostat housing and new housing gaskets as this is a weak point in the system. A new reservoir and level indicator is also a good idea along with radiator if so inclined.
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You will get the answer at this forum: http://bimmer.roadfly.com/bmw/forums/e32/
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very carefully...
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Water pump needs replacing