When am I supposed to engage the overdrive. I have it on all the time, will that damage the auto.

The erratic jumping in and out of overdrive (O/D) on your 2006 Terrano 3GMR with a 3.2L engine could be caused by a few different issues. Here are some possible causes and fixes:

1. Faulty speed sensor: The speed sensor provides input to the transmission control module (TCM) to determine when to engage overdrive. A faulty sensor can cause the TCM to think the vehicle is going too slow or too fast for overdrive engagement. A mechanic can test the speed sensor and replace it if necessary.
2. Low transmission fluid level: Low transmission fluid level can cause the transmission to shift erratically or not engage overdrive. Check the transmission fluid level and add fluid as necessary. If the fluid level is low, it's important to also check for any leaks that may be causing the fluid loss.
3. Worn or damaged overdrive band: The overdrive band is responsible for engaging and disengaging overdrive. If the band is worn or damaged, it may not engage properly. A mechanic can inspect the overdrive band and replace it if necessary.
4. Transmission control module (TCM) issues: The TCM controls the shifting and engagement of overdrive. If the TCM is malfunctioning, it may not engage overdrive or cause erratic shifting. A mechanic can test the TCM and replace it if necessary.

It's recommended to have a professional mechanic diagnose and repair the issue, as the transmission is a complex and vital component of the vehicle.

I might not engage the overdrive while city driving....just when on the highway...and like Mr. Gallent said...never engage while towing a trailer....
But no need for overdrive at 45 MPH and lower...let me elaborate...
If you city drive with the overdrive engaged...too much shifting...transmission will be making shifts that don't need to be made...and if a situation when you need to step on it quick to get out of trouble comes up....and if the transmission is in overdrive, running at 1200 RPM....you will be delayed a fraction of a second before your car finds a higher gear and kicks into go fast...now!....mode..
And additionally....too low RPM....might cause dirty exhaust from partial burned fuel...could eventually fill catalytic converter with soot.. premature clogging....
But if you jump it up to 55....engage Scotty.

I've heard differing opinions...and I do get the reasoning for running in overdrive anytime you can....because you will burn less fuel by running the engine at lower RPM's..
But to counter with one last point....the engines in cars today are much smaller, with smaller pistons and such, reducing the low end torque....These small engines do not produce the power/torque to properly propel the weight of a car at low RPM....they are designed to operate at higher RPM's where they are producing more torque and horsepower.... This higher RPM also works well to prevent strain on the crank shaft and piston arms...
I think the negative factors out weigh the slight gain of burning less gas...personally...But now you have some data to compare and make your own decision....that what this site is supposed to do...inform.
Didn't mean to rain on your parade Mr. Gallent....and in reality...your answer is absolutely correct....but so is mine....

Wild guess wiring connection at switch is bad, or switch is bad, or insulation has rubbed off control wire and is intermittently grounding thus the haywire in the instrument panel. I had a similar problem with overdrive solenoid control. Great fix was spiral plastic wire cover over the bruised insulation, still good 8 years later.

Does the car have a button on the shifter handle somewhere to disable overdrive? Also, there is a plug on the transmission that must be plugged in to engage overdrive so check to make sure it is plugged in correctly.

o/d stands for over drive you want it on all the time unless your towing or hauling something heavy then you want to turn it off or it will burn out your overdrive, it is ok to haul heavy with it in overdrive you just wanna make sure you turn it off if before you go up any hills or on the interstate or if you have to speed up and slow down alot

sounds like an electrical problem with the transmission ...these transmissions are fully electronic and the gears are engaged by servo valves these are controlled by the computer.... if there is any problem with the engine or a few other things it will be put into safe mode and it wont engage overdrive ..it may need to be scanned to see if any codes exist in the auto trans ecm..

Typically Overdrive is engaged when cruising, when the car is in top gear. Whether the activation button is on the dash, or on the gear selector, makes little difference to how the Overdrive system works. Pressing it will disable the overdrive. Personally, I have left the OD on in every vehicle I have owned at all times. If left on it will only engage at a certain RPM (highway speeds etc.). I hope this helps and good luck. Please vote and leave a message.

has the vehicle speed sensor been replaced? that is what controls when the trans shifts into od

It is not suggested strip and twist wires. Better take it to an authorized service station to check what causes the problem.Is it OVERDRIVE SWITCH or CRUISE CONTROL MODULE faulty?
Over drive switch has three points. (5 to 4 selects "ON" or 5 to 6 selects "OFF").
Right click on following schematic, "save picture as" to a location in your PC so you have a ZOOM IN view.


CRUISE CONTROL SYSTEM SCHEMATICS