The sensor at the differential does double duty. It is both the speedometer sensor and the rear ABS sensor. I'm not sure where the two wires eventually end up. However, when the needle goes erratic, does the odometer continue to operate smoothly? If it does NOT, then the problem is most likely with the wiring between the sensor and the speedometer. If the odometer continues working normally, but the speedo needle is haywire, it's most likely the gauge. You can also test it with the cruise control. If the cruise control is working normally when the gauge is haywire, the problem is most likely the gauge.
Also, sometimes if the issue is wiring, when the problem gets so bad that no connection is being made, you may also get an ABS light, because the ABS system isn't recognizing the rear sensor.
My '92 has the exact same issue. The haywire needle seems to last for a while, then it will work normally for weeks or months at a time. Then it shows up again. At this point, I believe the issue is with the gauge, and it's more an annoyance than anything more.
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Guid ('92 745 257k, '91 940 SE 278k,)
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