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This might be a silly question but do I need dielectric grease to install an ignition failure sensor where it mounts on to the thermostat housing assembly?
No you don't, but it's a good idea anyways. The sensor connector should have a gasket on it as well.
Here's a picture of the bottom of the old sensor. I thought it sat flush on the thermostat housing, but it's actually mounted on two posts above the housing. In any case, RPM gauge works now.
Required, but never shown