First thing is to accurately check the transmission fluid level. This is done with the car warmed up on level ground, engine running with the transmission in Neutral. If the fluid is way high still, you probably have your culprit. These transmissions are as sensitive to overfilling as underfilling. When it's overfilled, the fluid startes foaming and stops pumping, lubricating and cooling. Once again it's only one of the possibilites, but might explain the lack of performance and burned up fluid. I'd take it back and demand a remedy, you just don't know what damage has happened there. Best case would be a flush, filter and proper fill solving your problem. Let us know how it turns out..

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'79 300D, Ivory "Gunther" ......going
'81 300SD, Metallic Blue Silver, The Grey Ghost.....going
'87 300D Turbo ...gone
'05 CDI.... gone