Don't grind yet!. Get a squirt bottle of dish washing liquid and water 30/70 mix and soak the whole thing including the tumbler. Then try jiggling and turn the collar back and forth till it goes CCW. I think the pawl is just hanging up in the slot so the lube hopefully will help.

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85 300D turbo pristine w 157k when purchased 161K now
83 300 D turbo 297K runs great. SOLD!
83 240D 4 spd manual- parted out then junked