A timely thread... I just tried lubricating my speedo cable for this exact problem, without success. In fact it got a bit worse after I messed with it.

The cable on my car ('92 300E) does not seem to be separable from the sheath, from either end, so I couldn't really get any amount of lube into it (I tried spraying lithium grease into it).

In any case, it didn't seem particularly dried out anyway. I wonder if my symptons are instead caused by the cable starting to come apart, i.e. it requires some twisting at speed to maintain tension in the cable.

Anyway, I've got a new one on the way... not too expensive for my car ($38.50).

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1992 300E Sedan (Sold)
1999 E320 Wagon (Sold)
1995 E320 Sedan
1995 E320 Wagon