The sending unit is a reluctance-style pickup, which uses a toothed wheel within the final drive to sense rotation of the wheel. The coil in the pickup has a measured open-circuit output voltage (into 1 MΩ) of about +/- 0.5V.
The electronics package is inside the instrument cluster.
You see, the problem comes about when the terminals in the connection between various parts of the speedo assembly begin to corrode. This happens because moisture can enter the housing, perhaps by being exposed to a hard rain, which then attacks the metal surfaces inside the housing (note that late K's have Gore-Tex™ vents to allow the water vapor to escape naturally).
Evantually, an oxide layer forms on these contacts. This essentially insulates the two elements of the contact from one another. Since the signal is low voltage, it doesn't take much resistance to reduce the speedo input to the point where it won't drive the rest of the circuit.
Both these steps require disassembly of the speedo, so let's get right to it!
First, you need to remove the speedo from the bike. There are two 10 mm nuts holding the housing to the upper triple clamp and a phillips screw retaining the electrical connections to the back of the housing. Remove them in whatever order makes sense to you and carry the speedo housing over to your workbench.
There are four allen-head capscrews which hold the mounting plate to the cluster and (on my '85 K100RS) seven phillips screws which hold the rear cover in place. Remove all of these and take a look at the internals of the cluster.
You'll see a six screws, which hold the circuit boards, bulbs, speedo and tach, etc to the cluster housing. To remove the guts from the housing, first remove those screws. Then, gently pull outward on the odometer reset knob. You can then turn the cluster over and the guts will fall out in your hand (do try to catch it!).
Note: If you pull the odo reset out too far, the spring, retaining clip and washer will probably pop off. Just reassemble them in this order: washer, spring, retaining clip.Next, remove the small black, slotted screw as shown. This will allow you to separate the speedo from the rest of the cluster, and will expose the connector which is causing all the trouble!
Clean those pins thoroughly! Contact cleaner will remove some of the oxide layer. Use it on the sockets the pins fit into, as well. A cotton swab will allow you to wipe any residue off the pins theselves, while you'll just have to let the sockets air dry.
To prevent the problem from recurring, apply a thin layer of petroleum jelly or silicon grease to the pins before reassembling the unit.
Additionally, if you tach is exhibiting similar behavior, you can also clean up the pins which connect it to the main circuit card in the cluster. The job is very similar, except that there are three black screws which need to be removed prior to separating the tach assembly.
As far as the rest of it is concerned, assembly is the reverse of disassembly!
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