Thanks For all the help.
Here is my summery.
The Arcing was caused by brushes holders touching commutator.
There was 2 spacers by the gear so I moved one to the commutator side because there was a lot of wear on that side. Was there suppose to be two spacers on one side? Or did someone take it apart before and put two there?
I already really cleaned drum and contacts. I checked continuity of each wire from reverse unit to prong. One was not working. Although it looked attached, I unsoldered then resoldered the wire and vola everything worked.
Actually I gave it back to the person it was retuned to me same problem. But this time I knew excactly what it was and checked wires and yes another had to be resoldered.
Do these wires get very weak over age? Should you cut back a 1/4" before you resolder or should wire always be replaced?
