Thermostat

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The Thermostat is a thermostatic valve that maintains a specific coolant temperature throughout the cooling system.

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Function

The thermostat closes at cold temperatures, and begins to open around 170°F and opens fully (about 10mm) at 194°F. As the temperature of coolant increases, it opens more. As the temperature decreases, it closes slightly. This has the effect of maintaining the temperature of the coolant at around 180°F, which is ideal for reducing wear on engine components and producing peak horsepower.

Location

The thermostat is sandwiched between the upper coolant pipe and thermostat housing. It should be installed with a thin bead of liquid gasket around the "slot" in the upper coolant pipe.

Maintenance

Thermostats do fail. Usually when they do, the wax pellet that causes the expansion bursts and fails, causing it to "stick" closed. When this happens, the car will overheat regardless of driving conditions. This can be a gradual process, too, beginning with normal operation and slowly opening less and less, causing overheating to varying intensities.
The thermostat is to be replaced every 60,000 miles as part of the 60k maintenance service. Being that it is cheap and easy to replace, there's no reason not to.

Aftermarket

Aftermarket thermostats (NISMO, Billion) are available that open at a lower temperature, though the merits of this lower opening point are a point of debate among Z32 enthusiasts. Some argue that lowering the operating temperature brings the engine out of if its most efficient temperature range and can reduce wear. Others say the lower opening temperature only indicates when the thermostat begins to open, and that it behaves mostly the same as a stock thermostat except that it opens further.