Ok so here's the story,

About a week ago, probably 30 minutes after parking my car I got back in to run to the store. I turned the key and noticed my glow plug light didn't come on and my roommate noticed a small amount of smoke coming behind the cluster. I pulled the lower panel, everything looked fine so I cranked the engine and let the car idle while I went inside and grabbed a fire extinguisher. I ran to the store, came home and turned it off.

During the drive I noticed my tach started working (it's usually dead and occasionally jumps around for a second). Other than that, the car ran and drove fine with no other problems.

After we got back I turned the key and got nothing but the key buzzer and a seat belt light after I tried getting the engine to crank. No glow plug light or battery light etc.

So today I replaced my ignition switch, put everything back together, turned the key and got all my dash lights but the glow plug indicator, but was able to crank the engine. It was very apparent from the old switch that it had arced badly enough to melt some of the plastic connector portion of the switch so I figured I had found the problem.

My battery was struggling from sitting so I jumped it, glow plugs worked, and it fired right up. My buddy who was outside the car noticed some sparks coming from under the air filter so I immediately turned it off. I pulled the air filter assembly and was shocked to see there wasn't really anything that could be sparking. I was able to see where it was arcing and it appeared to be between the intake manifold and air filter assembly which seemed strange. I examined my starter and ground wires and decided to replace my ground before trying to restart the engine as it looked pretty corroded.

Now I'm back to having no dash lights and the starter won't crank! Fuses are all fine but I'm confused as to what could have happened that would set me back at square one when all I did was replace the ground from the battery to the chassis.

Where do I start?! I'm too frustrated to logically walk myself through any more meddling without losing my mind.

maybe the wires inside the plastic junction box? not sure if the w123 has that junction box thought (wires from the alternator run into it and then into the battery).

If you're referring to the tiny black box on the pass. fender then yes, my car does have a junction box. Unfortunately I've already tested these wires and they're fine... I'm thinking I may have an underhood short somewhere

Double check the grounds from your gauge cluster. In the name of overkill I put a second 2ga ground cable from the alternator to the body.

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$60 OM617 Blank Exhaust Flanges
$110 OM606 Blank Exhaust Flanges
No merc at the moment

Sounds like your engine to chassis grounds were fried and without a ground for the current other components started burning up. You probably fixed the root issue by changing the ground. Now you just have to figure what else burnt up when you didn't have a proper ground. Also you may have a couple more engine to chassis grounds. I don't know as I am new to these cars. I'd look around and replace them all if they look corroded.