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That is your suppressor housing. Yes, replace it. It's cheap. Do it at your next full tune, but monitor untill then. And probably your cap and rotor while you are in there. Looks like you are missing your distributor cover (I think it is called.) as well. This often happens when the two tabs on the SupCov fail.
You might as well have new ignotion wires, wire holder and plugs on hand as well. And the air filer too.
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David
1986 300E Anthracite + ECodes + MB Mileage Award
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