THIERRY Neuville has leapt into the lead of Kennards Hire Rally Australia after his Hyundai team mate Andreas Mikkelsen crashed out on the second stage of the morning loop.
Overnight leader Mikkelsen paid a heavy price on the challengingNewry run when he struck a bank, resulting in a double puncture and retirement for the day.
His team will retrieve the car for repairs and re-enter it tomorrow but the 2016 Rally Australia winner has likely lost any hope of a successful defence.
Neuville went into the midday service break holding a 6.3sec lead over Toyota's Jari-Matti Latvala while Kris Meeke (Citroen) is third, 22sec back.
Prior to Mikkelsen's disaster, he had seen his lead clipped by almost five seconds courtesy of an early attack by Hyundai spearhead Neuville, who took a slashing win in the 48.89km Nambucca test, the longest of the rally.
Then Neuville suffered a transmission problem, losing first gear late in the morning loop.
"I'm feeling really good, our pace is quick. But I'm a bit disappointed as well that the fight with Andreas is over now," Neuville said upon his return to Coffs Harbour Service Centre.
"I was looking forward to trying to catch him this afternoon. We put the pressure on and he made a mistake like a lot of us on this Newry stage.
"The lines were all going straight because many cars already made mistakes."
Latvala was satisfied with his morning's work to lift himself into a potential winning position, confirming his confidence after the Thursday shakedown.
"It's been a very good morning. We were a little bit lucky that the rain came and made it a little bit damp," Latvala said.
"We had the soft tyre and made an attack on those conditions and it was working well."
Latvala was second to Neuville on on the Nambucca stage but then came out and blitzed the Newry stage, which had proved a handful for others.
"I learnt some tricks from the onboard (video) of Newry where you can improve. It's where you cut and can carry more speed," he said.
"I had been braking too early."
Local star Nathan Quinn is up to 12th outright and the highest placed Australian in his 10-year-old Mitsubishi Evo 9.
He also holds a lead of almost two-and-a-half minutes over Subaru driver Molly Taylor, his only rival in the showdown for the 2017 CAMS Australian Rally Championship.
Harry Bates and co-driver John McCarthy officially withdrew from the rally after the Neal Bates team found a cylinder issue had been the cause of overheating problems on the opening day in their AP4-spec Toyota Yaris.
Brendan Reeves and co-driver Rhianon Gelsomino suffered a huge accident in their Mazda2 halfway through the Nambucca stage, escaping unharmed altbhough their machine was heavily damaged.