Transmission starts to slip (flare), there is a low "boom" from the tranny, and a "bing" from the dash.
Transmission locks in "limp" mode - 3rd gear so you can "limp" home or to your nearest dealer.
Message on Dash "TRANS PROGRAM - Consult Owners handbook".
NOTE: This only happens once the car has warmed up - usually after 15-30 minutes of good driving. The car is fine when still cold.

Procedure courtesy of Trevor Doornbos (prices in AU$).

Things to check before even contemplating a transmission overhaul:
Check electrics - Alternator and battery.
Replace DME Relay and Fuel Pump Relay - not expensive.
Remove disassemble, clean and reassemble gear selector switch - If it looks beyond saving, replace ($200)
Service the transmission ($130 from a specialist) and check/replace transmission speed sensor ($90)

Transmission speed sensor (Thanks to Doornbos, Trevor)

The above saved my bacon and a recommended $3,000 transmission rebuild.

My story (long) is below:

So you've finally bought an E34 (1989 535i) privately (you can't trust the car sharks) with an excellent maintenance record (receipts and everything).
Six cylinders of smooth power to push you effortlessly through the S-bends on your favourite road. A stab at the throttle and the tranny chops down for an extra surge of power to push you through the corner. Then it happens. "BOOM" from the tranny, "BING" from the dash. The tranny is now locked in limp mode which means that you're stuck in 3rd gear which isn't always the best gear to power out of a good flowing corner. You look down at the dash readout to see "TRANS PROGRAM Consult Owners Handbook". The good news is that you are a pretty experienced driver which means that you didn't end up over the hard shoulder and down in the creek with the eels.
The Owners Handbook. A positive wealth of information (not). "TRANS PROGRAM" to find the manual states "Take the car to your dealer". Now I ask you, if these Germans are so clever, why can't they just say "TRANS PROGRAM - Take Car to dealer".

That was the 3rd week of owning the car. What followed was amusing, at least in retrospect.
Over a period of 4-6 weeks I consulted 2 BMW dealers (service) in person, an auto electrician in person, 3 mechanics over the phone, 1 mechanic to analyse the problem, and 1 Transmission shop to do the work.

Initially I was in the dark, until I happened across the BMW E34 web forums. I'm in Sydney Australia, so was keen to make local contact. After some trial and error I made some local contact and was recommend to this site. Hoo-boy, have some others had some fun with Trans program.
Well, forewarned is forearmed. I bought replacement DME & Fuel Pump relays - no change.
Had an auto electrician check the battery and alternator - all fine.
Dismantled and cleaned the gear selector switch - better but still happening.
Cleaned and then replaced gear selector switch - still happening.

After consulting this forum, my contact in Sydney, and the Service rep at BMW Sydney the one conclusion was reached. Service the tranny and replace the Tranny Speed Sensor. This is a $90 part which should take the whole transmission service to around $220.
Couldn't get in to BMW Sydney as it was before Easter and they were totally booked out for 2 weeks. Tried a mechanic semi-referred to me. Decided that his diagnosis (that the 2nd & 3rd gear clutches were slipping so the tranny needed rebuilding and would cost me $3,000) was a bit off the mark.

Next decision was to try a Transmission Specialist. Took the car in and gave the guy the history. He took the car for a day just to check it out. His diagnosis was that the tranny was essentially running well, but the sensor or perhaps solenoids could be faulty. Left the car with him while away on business for a few days so he could have a really good look at it.
$220 later the tranny is purring like a kitten, okay maybe a tiger....

Drove the car yesterday for the first time after the problem was fixed. I have a 35 minute drive to work which is on lovely winding roads with a few gentle hills thrown in for good measure. When I got to work I almost turned around to head back home and do it again. Very happy.
I picked up my brand spanking new Bentleys 5 Series service manual yesterday. $200 from technical books in Cremorne (For you Sydney siders).
This book is the bible that so many forum resolutions keep referring to.

Epilog:

Forewarned is forearmed.

Buy beg borrow or steal a Bentleys manual.

Research on the forum and email a few knowledgeable sounding people for information/assistance. Everyone there is dedicated and loves to help.

Before you approach any mechanic, dealer etc, at least sound like you know what you are talking about. You are less likely to be hoodwinked by sharks.
Be specific on what work you want done (or not done). Agree on a fixed price, and get a couple of quotes. I recently had some work done on my house and ended up $5,000 out of pocket because I wasn't specific.

Treat your E34 like you would a baby. Don't leave it with just anyone. Get references, and interview them to make sure that they at least sound like they know what they are doing. If the 1st and only response you get is "Leave it with us and we'll see what we can do", Walk away!

Be patient. Unless your friends refer to you as "Mr Wallet", you can get hurt financially by the sharks and low-knowledge mechanics out there.

Thanks should go to:
Bruno for his excellent web site, and responding to questions regarding my problem. I'm hoping a section will be added soon with "TRANS PROGRAM". (bmwe34.net: here it is)
Geoff Hoad in Sydney who though I have never met him, went out of his way to help me. Other than many emails to and fro, Geoff faxing me wiring diagrams from the Bentleys (of which I now also own) to help the transmissions guy.
Donald Shakes at BMW Sydney (Service) who went above and beyond in helping me, including step by step instructions on how to replace the speed sensor.
This forum for being an excellent wealth of information.
Enjoy - Trevor.

• Bob Ralph in the UK The stealer read the memory several times to help diagnose the cause it wasn't until someone else there said - "nothing in the memory? that means its the ECU". So I changed it and he was right.
I now know repairing ECUs is big business - except nobody could repair mine. I had to buy a used one - not easy to find considering my model is relatively rare. Changed the ECU and the TRANS PROGRAM code cleared.... Something else to think about.

• Heres a tech tip from Anthony Waner: 91 525i if you loose reverse,,check out the following..the lock out valve located in the small pan on the drivers side is a magnetic switch, if you loose reverse for no reason first get this checked out ..cheap part from the dealer 46$ quick fix.

ANOTHER WRITE UP: Robert J. Kieffer
1991 535i
Bimmernut.com member

My 1991 535i has had the "Trans Program" error come up sporadically for about the past year. At first, all I had to do was shut the car off and wait a minute or two and it reset itself and everything ran fine. But as time went on, it was harder and harder to get it to reset. In my case, when the error message was not showing, the car shifted perfect. That lead me to
believe that the tranny was actually working fine. I just had some sort of intermittent electrical problem. So, I began checking things in the electrical system.

The tranny is controlled by a computer, just like the engine. Anytime there is a low voltage problem, or a problem with an electrical signal from one of the sensors, the tranny computer throws up the red flag (Trans Program message), and only allows you reverse and third gears in an attempt to save itself. Unless the computer resets the error, the car will remain driveable with only these two gears. That’s why the car takes so long to get moving when the error message is showing.

Before going into all the steps below, it really pays to find out if any error codes are stored in your engine computer. These codes may give you the real reason for the problem, as they eventually did for me. To learn how to download the stored codes, go to: http://www.bonnevillemotorwerks.com/fault.html. The reason this is important is because the engine sends signals to the tranny computer. In my car, it was a faulty signal from the throttle position sensor that was causing the problem.

You see, I had done all of the things below and continued to have the problem. Until one day, someone shared one of those priceless bits of information that cured my problem. Up to this point, the engine computer was kicking out a faulty throttle position sensor code. Well, I got out the Bentley manual, went through the diagnostics and concluded that the switch
was fine. Hum? Well, the aforementioned gentleman had had the same problem with the same fault code and had happened to run into one of those old, seasoned BMW techs who told him to check his connectors. In particular, he told him to actually locate the wires that sent the signal from the throttle position sensor to the engine computer and trace them to the connectors. Then, with the connector apart, he told him to bend the spades for those wires slightly so that they made better contact with the female side of the connector. So, he went home, found the correct spades, bent them, and the problem went away. Seems that one of those little spades just wasn’t making good contact all the time. And every so often, it would loose contact and cause the Trans Program error to come up. So, I did exactly what he did. And guess what? My problem disappeared never to rear its ugly head again.
Hallelujah!

I will tell you that you’ll need a complete wiring diagram for your car to do this. It will show you how many connectors are in the circuit, what color the wires are, what number the wires are, and sometimes, where the connector is located. I know from my experience that the Bentley manual contains all the information you’ll need. But even with the correct wiring diagrams, it is hard to read those little numbers in the connectors.

Now, if your engine computer is not storing any codes, you may want to go through the steps below. First, you’ll want to check for low voltage issues.
Probably the first thing to do is have the battery and charging system checked. If the message comes up after an especially cold night, or after the car has sit for a few days, you may have a low battery. A good way to check for this problem is to take the car for a drive of a couple miles with the trans program limp home mode engaged. Unless your tranny really is
having mechanical problems, driving it with the Trans Program message showing should not hurt it. After a couple of miles, park it, wait a minute or two, and see if it starts up without the message. My car used to do this quite often after not having driven it for 3-5 days. You’ll also want to check the fluid level, have the battery load tested and make certain the alternator is charging properly. Of course while you’re checking the battery, make sure the terminals are all bright and shiny. If everything here appears normal, it’s time to move on.

Next, check the main power relay in the E-box (little covered box under hood in front of glovebox). The E-box cover has four screws that hold it down.
After removing the cover, you’ll notice a large box with a large connector right next to the firewall, which is the ABS control module. Now, next to it towards the front of the car are 2-4 small square plastic boxes. These are the relays. According to Bentley, the main relay is the one closest to the engine. To replace it, simply pull straight up. While you're in the e-box,
go ahead and take a look at all of the large connectors there. Again, according to Bentley, the one for the main engine computer is the one next to the relays but towards the front of the car. . The farthest one forward is the cruise control module. I actually cleaned each of the connectors and corresponding spades with alcohol. I also cleaned the large connector going into the tranny computer. On my 1991 535i, the tranny computer was located in the passenger side lower kick panel behind the speaker. It’s easy to take out, but you do have to remove the glove box and peel back the sound deadening material to get at the screws. After cleaning all of these contacts, I also applied Pro-Gold, which is a electrical connection
conditioner. It is supposed to provide better conductivity. I purchased mine from Radioshak.com.

Next, take a look at the auto/manual shift switch near the shifter and the shifter lever position switch. Both of these switches can be accessed by removing the wood console piece. To do that, pry up the little strip with the “PRNDL” letters on it. Under it are two screws holding the black plastic piece that surrounds the shifter down. Once you remove those screws, you’ll need to remove the shift handle. If you’ll pull it back into the low gear position, you’ll be able to see the set screw located in the front edge. Loosen it and pull straight up on the handle to remove it. At this point, you’ll be able to remove the black plastic piece that surrounds the shifter. To remove it completely, unplug the connector going to the auto/manual
switch. Once you’ve got it out, you’ll have to remove the wood piece. Just to help you, you have to hook something under the front edge of the wood and lift up. I used a small allen wrench. Once you have the wood piece off, you’ ll see the large shift lever position switch. The auto/manual switch is the one attached to the black plastic piece you already removed. Thoroughly clean both switches with alcohol or some other solvent designed to clean electrical contacts. My switches were filthy. I will caution you that the removal and disassembly of the switches is not for the faint of heart. If you're not mechanically inclined, I'd recommend finding someone who was before starting.

There have also been some things written about replacing the speed sensor inside the tranny itself. I bought one but never got to put it in, since bending the spades fixed my problem. This job is supposedly a do-it-yourselfer. The gentleman who helped me with my problem also suggested removing the main wiring harness connector that goes into the driver’s side
of the tranny. If you find trans fluid in the connection, it probably means that your seal has gone bad and you need to replace the tranny wiring harness. He said that he’d had this problem on his car and had fixed it himself.

So there you go, About everything I know about this problem. I’d been meaning to write all this down for a long time and finally did it tonight. After all the effort, I’m going to save it. I might also e-mail it to a few BMW sites to see if someone will post it. Anyone who’s done other things to cure this problem should post so that I can include it in this narrative.

More information from Dan Zeitlin

My experience with TRANS PROGRAM fault in a 1995 525i (E34 M50TU)

TRANS PROG suddenly appeared while driving. No prior symptoms. Trans switched to 3rd gear mode and car was limped home. Thereafter, TRANS PROG message came onwith ignition switch. Car started and ran smoothly and normally. No codes that Peake tool could read were set. Went through the ritual of resetting the computer(s) amd checking switches and connectors and cleaning contacts. Reseated the ECU connector. No joy. Finally, after removing the Transmission Computer (EGS) and ohming out all the remote devices through the EGS connector and deciding they all looked consistent with each other and good, I remated the EGS connector and turned the key. All was well. The fault had disappeared. I assume the connector needed reseating, or that the fault is intermittent and I will be seeing it again. Nonetheless, I do have the mesaurements of the transmission-related devices as seen through the EGS connector. Presumably they are good units, so the readings may be useful to someone else. The readings are consistent with what can be expected for these types of devices. I subtracted the 0.2 ohm resistance of the leads and probes.
1995 E34 M50TU Build Date 4/95

If you are unfortunate to need the EGS above, Bavarian Auto Recycling and BMW Used Parts at (800)269-0863 had them for about $300.