The temp sensor itself is located in the louvered section under the front bumper, directly under the driver's side headlight, mounted horizontally. It really shouldn't be affected by engine heat, particularly when moving. I've found mine to be quite accurate in cold to mid temps, but when it is really hot it tends to read high because of reflected road heat. As far as the automatic climate control, to my knowlege it simply tries to get the cabin temp to the set temp as quickly as possible (hotter/colder air & highr fan speeds) and keep it there. I don't think there is any connection to the outside temp sensor at all.

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1996 SL320 97K miles
1996 C220 130k miles
1992 500SEL 170k miles <---sold
1986 300E 216k miles <---sold