Option 2 for me as well. 3% engine damage might be already huge, but we have to test it.
People complain about the very fast mechanics in lfs. But this is a game after all and I like this more than iRacing's 30 minute rapairs when punted off by a backmarker
Having said that, in the future having a choice on the repair time per server might be perfect. As in an endurance race losing 12 seconds is no loss at all. While 30+ seconds engine changing might cost a lap.