Craftsman 3 gal., 1.5 hp air compressor: won't auto shut off, builds only 40 lbs pressure, air leaks from the 2 holes in oil filler cap?

i would look at the head gasket

If it makes hesitation sounds just before shutting off, you need to oil the compressor as per the manual. This is the most common problem.
If it is kicking on and off normally, you need to adjust the pressure relay. The instructions are under the cover.

Sounds like the compressor has failed, more than likely a scored cylinder wall.

Hi, my name is John. Welcome to FixYa. You have air leaks. Check all lines, pressure switch, line coming from pump to tank. You may have to remove this one to inspect it. Check valve at the bottom of tank. Thanks for choosing FixYa....John

Oil free pumps do tend to blow the piston ring (not too expensive) available at searsparts.com. Remove covers to pump and manually turn crank until piston is at top and look at the condition of the cylinder neer top, If it looks scratched, order cylinder kit with piston ring. If it looks good and shiney, could be the valve plate in the head. There are reed valves that tend to break. Run pump however with covers removed and check with soapy water for air leaks and repair as needed (air leaks under the cover will prevent unit from filling). Good luck

piston rings have gone buddy strip the barrel off and inspect get back to me

Check to see if air is leaking past 'pressure relief' valve. It's probably leaking and that's where all the air is going.

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The compressor valve may have a faulty gasket or seal, and maybe leaking air internally. Or the compressor might be going downhill. You can try to replace the valve seal and see if that makes a difference, otherwise you need to replace the compressor.

sounds like the regulator is fualty.

compressor will not build pressure