I think you're right re. that circuit grounding somewhere.

Basically, battery voltage goes via ign. switch to the instrument cluster where it goes through the amp/battery warning bulb, and also through maybe three other warning bulbs, then out to that gray connector then to the alternator.

At the alternator it provides "exciter" voltage; the alt won't run without voltage from that small red wire.

Hopefully someone else will chime in with more authoritative tips on chasing it down. My guess is that the ground is between the instrument cluster's output and the gray connector. If the ground was on the path TO the cluster those warning bulbs would not light.

Warning re. removing the instrument cluster. There's a red + white wire behind the cluster and is ONLY for a tach. You have the wire even if you have no tach. Don't hook up that wire to anything else or you can cause serious damage, as in smoke etc.

That said, you could pull the cluster, then start testing for continuity to ground in the wire leads that plug into the cluster. Haynes has a decent diagram with wire colors for the cluster harness. Not your year specifically, but most colors likely didn't change?? I'm sure Bentley also has that information.

I think it's FOUR cluster warning bulbs that together pass the current to the alt. If one or two go out/dead, the alt will still work. If three or four bulbs are out/dead then the alt doesn't get enough current to work. Anyway, you could remove warning bulbs one at a time and see if removal of just the right bulb gets your alt working. Then you have to chase down the circuit and fix it; you don't want to be driving with dead warning bulbs.

Check for short at oil sender, located above the oil filter. That wire likes to get shredded. It goes in a harness that curls under the timing belt cover; that has the alt's fat and thin red wires plus the black oil sender lead. Discussed in another recent thread here.

You also can check the brake warning switch wire. Follow straight down from brake master cylinder to an "octopus" connector. Brake failure switch is there, along with 8 brake lines; that wire could be bare and shorting.

My money is on the black oil sender wire in old harness under the timing belt cover. Might be good to run a fresh one straight from the gray connector, similar to the alt's red wire that you ran. When you get the wire at the connector it should be easy to verify it's the right one - ground it and the oil light should come on.

Good luck!
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Sven: '89 245 NA, 951 ECU, open-front airbox, E-fan, 205/65-15's, IPD sways, E-Codes, amber front corner reflectors, quad horns. Wifemobile '89 245 NA stock. 90 244 NA spare, runs.