The first part of the story. E36 325i, 160000 miles. The brake wear indicator had come on. I replaced the brake disks, pads, sensors and fluid. I was bleeding the old fluid out when I THOUGHT I sucked some air into the system. I bled and bled and bled the system but still had a really mushy pedal. I took it to the dealer for them to bleed. Still no help. They said it was a bad master cylinder. Still no better. They said some of the master cylinder seal had plugged up the ABS unit. I decided to use the sense God gave me, pulled the ABS unit out, disassembled it, found NO dirt or bad parts of any description and put it back in. Still no better after 20 bleedings (almost 3 gallons of brake fluid).
Now, for the conclusion of our story. I wrote a letter to the service manager about their shop being a bunch of expensive parts replacers and, after no response from him, to the general manager of the dealership. Soon after, from the service adviser, “Bring your car back in (90 miles) and we’ll put our best man on it.” Got a new 325i loaner for a couple of weeks. It turned out that, in installing the front pads, one of the steel fingers that hold the pad to the piston had missed the hole in the piston and pushed out between the pad and the piston, creating a gap between BOTH front pistons and their respective pads. So, every time I applied the brakes, I not only had to close the gap between the 8 pads and 4 disks, but also two additional gaps between BOTH front brake pistons and the pads attached to them. This caused the increased brake pedal travel and mushy feel. There was also a rattle that they traced to a loose rear pad. I was sufficiently embarrassed about my part in this but unhappy that the dealer had so much trouble (at my expense, of course) solving a relatively simple problem.
The upside: I now have brakes that work properly and went ahead with purchase of an ’04 M3.