I had a very similar problem with my 1990 520i - I could run the fan at position 4, but not at 1, 2, or 3. I either had full blast heat/ac or nothing. The contacts for the switch had slightly bent, and were no longer electrically connecting. I never actually got the fix done (take apart the control assembly and re-bend the contacts) before I had to sell the vehicle so I could leave Germany (The Army dictated the timing of this, and it was a EuroSpec BMW that I was not willing to spend the $ on to convert).

Hope this helps.

CTM

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Lifetime owner
1977 240D

"new" owner
1988 300TE