I recently replaced the front oxygen sensor on our 1996 850 (gang, meet Arabella; Arabella, meet the Brickboard bunch), and thought I'd share things I learned for the benefit of others.
Bay 13 has a discussion of how to do it (http://www.volvospeed.com/Repair/o2sensor1.php), but I still learned quite a bit. The following notes supplement Bay 13's discussion:
1. The online parts houses, and Bay 13's discussion, both say that you have to replace sections of wiring harness to prevent contamination of the reference wire. On the other hand, a local, large Volvo-only parts house, and the dealer, said this is not necessary on 1996 850's, only on 1997 and newer. I went with the cheaper advice; time will tell if I was right. I wound up paying less by going with the local parts house, from not buying the wiring harnesses.
2. The connectors are at the rear of the engine on the left, on a little bracket bolted to the engine. As Bay 13's discussion indicates, you have to remove the flex duct from the exhaust manifold to the airbox to get to them. They are locked together by the red cap shown in Bay 13's discussion, and lifting it up about 1/4" will allow them to be separated. If you have trouble separating the parts, see if the cap will lift up more, because they should come apart fairly easily.
3. The clips that hold the wires in place as they run from the sensor to the connector can be removed by squeezing the body of the slip with pliers. I first tried getting to the part that clips into the body, but it's almost inaccessible, even with my best needle-nose pliers. The lower clip is in a tricky location, but a little grunting should make it work.
4. Like the O2 sensors on older Volvos, the sensor takes a 7/8" wrench, but not, alas, a box wrench. There's enough room for an open-end wrench (aka spanner for Brits).
5. My big lesson: that red cap that holds the connector together also pulls the parts together. You line up the parts, push them together until you encounter resistance, then push the red cap down. Little fingers running down into the body of the connector have slanted slots that engage tabs on the connector from the O2 sensor. As you push the cap down, the slots pull the two connectors together. Clever, though very elaborate. I found it easiest to assemble them while they were loose from the bracket, but that may be because it was how I understood the function of the red cap.
6. Final lesson: the connector from the O2 sensor has a clip on the side that snaps onto the bracket to hold it all in place. Don't try removing this once you've pushed it on; the little finger that snaps into a slot on the bracket is easily broken - he said with the voice of experience. If you do break it, you'll add five minutes to the work and use up about a pound's worth of, um, frustration threading a zip-tie around the body of the connector to hold it on the bracket.
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