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BMW, like all German carmakers excluding Porsche limit all of their cars to 155mph (except the 2.5L and 3.0L which are limited to somewhere aroung 132mph). Most people who own cars like the M5 shouldn't by any means be going over 155mph on the Autobahn, and I believe that the German Government subsidises car makers to limit their car's top speed, however yes, BMW engineers claimed that the E60 M5 is capable of around 205mph, which I believe.
Realistically there is no reason for a car to have such a high top speed. F1 cars average around 160mph. In a drag, the fastest stock cars only hit around 115mph, and on a track most cars won't hit 155mph. So really, the only places anyone would ever hit above 155mph would be possibly on a track (but not too often) and on long stretches of Autobahn, where the incredibly high speeds these cars are capable of just arn't safe in anyone's (even an very experienced driver) hands.
Porsches and Exotics are not governed because a) these cars really are designed to go 200mph + (unlike the 4-door M5) and therefore are more likely to ever need to hit those speeds and b) higher top speed sells more sports cars. There is a big differerence in purpose between the M5, which is really only a very fast sedan, and say a Porsche 911, which is actually a sports car, and is more stable at high speeds. Most people who but the M5 don't only want the high speed and acceleration, but also the room of a 5-Series and the luxury feel. If you want an all out sports car, you should probably get a 911 or a Viper.
The top-speed limiters are programmed into the engine management software, and can be removed by purchasing a performance chip. An example of this is my car, which has Dinan Software that removes the limiter.
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Kimi Raikkonen 2007 WDC
Scuderia Ferrari 2007 WCC

"I collect walnuts"
-Kimi Raikkonen on his hobbies outside of F1
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