Dodgy gearbox sensor or the cabling to it. I'm not sure how much they are
but not too expensive. You could probably get a s/h one from a scrappy for
about £5. The Citroen ones are fairly easy to get out (less than 30 minutes
to swap them over) and then you could see whether the teeth are worn and
whether spinning it makes the speedo work.

Does it work when cold but not when hot?  My late model ZX does this
(uses the same parts as the 306, don't know about 406).  It turned out
to be the cabling.

Chris

Had the same problem. It was a electronic control module behind the
glove compartment. It is black, with a 9 pin connector and it has some
white on it. Costs me about 40 pounds sterling from a Peugeot dealer.

It could also be the sender unit on the gearbox, or the speedometer
itself (unlikely though). If you have access to an oscillioscope I can
probably tell you how to test exactly what is at fault, but for what it
costs I'd just try replacing the control box.

Jonny.

Thanks to everybody for your assistance.  It did turn out to be the control module which cost $140 Australian.  Unfortunately the speedo still reads about 7km more than you are actually doing, and over 3km the odometer measures about 3.1km.  It's fairly evident that these cars have dodgy electrical systems, which is a shame because they are a brilliant car in most other areas

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rogerlaredo