It depends on the year. Earlier 123s (up to 1980?) have the glow plugs hooked up inline, newer models parallel. If one glow plug in that inline system is bad, the other ones won't work either. I don't know about the indicator light, though, but I think it won't work then. In newer models it doesn't matter if one glow plug is bad, the other ones will still work, as well as the indicator light, I believe. Of course, starting is getting harder or impossible the more glowplugs are out.

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'99 S420, 155k
'91 VW Vanagon GL, 150k
'85 VW Vanagon GL, 120k
'82 VW Westy, aircooled, 165k