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In the pole position shootout between those in the fast six, Alexander Rossi set the early marker to beat of 59.609s, until Newgarden scorched around in 59.525s despite grazing the wall.
That would have looked good enough for pole, especially after David Malukas of Dale Coyne Racing came within 0.028s, but Herta found a remarkable quarter of a second on used soft tyres to deliver a 59.269s.
Dixon, seeking his first road course pole since 2016, fell a mere 0.089s short, demoting Newgarden and Rossi down to the second row and Malukas to fifth.
Scott McLaughlin, who has never competed at the Toronto street track, ended up sixth in the final stage of qualifying.
But the drama cranked up in the second group of Q1, when Power, Palou and Rahal all dropped out early.
Andretti Autosport’s rookie Devlin DeFrancesco, in front of his home crowd, was sent out on red tyres from the start of the session and delivered a 60.154s but then he caused a yellow flag at Turn 3.
He got going again under his own power but almost simultaneously, Alex Palou ground to a halt. By the time the track was cleared, there was only enough time for IndyCar to allow drivers just one last crack at a flying lap.
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Herta moved up to the top of the charts ahead of DeFrancesco, with Josef Newgarden third, ahead of Romain Grosjean, Felix Rosenqvist and Christian Lundgaard.
Kyle Kirkwood smacked a wall at Turn 6 and the car spun into Turn 8, which brought out a red.
Lundgaard’s team-mate Rahal, who couldn’t advance despite a strong weekend for the squad, was among the big losers from that stoppage. But even unluckier was Will Power, who was over three-tenths up on Herta but had to abandon the lap and wound up eighth.
The issues caused Palou qualify down in 22nd, with Power 16th and Rahal 14th.
In Q2, Callum Ilott narrowly missed out on the fast six shootout in seventh place for Juncos Hollinger Racing, ahead of Swedish duo Felix Rosenqvist (Arrow McLaren SP) and Marcus Ericsson (Chip Ganassi Racing), with fellow Scandinavian Lundgaard completing the top 10 on the grid.
IndyCar Toronto - Starting Grid