This is one of the sloppier pair of rear brake shoes we have seen. The shoes shown have been well-coated with differential oil, and obviously, are not going to do much braking in this condition. New shoes, new axle seals, gaskets and an o ring are in order. We have a wet brake rehab kit available in our catalog to address this common problem.
This is one of the most routine failures we have seen on Spridgets, it seems like about 75% of the cars that come through our shop have this issue, not always as ugly as this one, but often leaking. If you are unfamiliar, axle are sandwiched over the rear hub and differential oil often leaks out of this union and ruins the rear brake shoes.
So how do you minimize the likelihood of this leak recurring?
We use the correct gasket and o-ring, a new seal and we make sure the axle fits flat with the hub so that there are good mating surfaces. The secret sauce we add is gasket shellac, to help fill any voids in the gasket. We don’t recommend RTV/silicone/thick sealant because it seems to add too much material, and can actually make leaks more likely to recur.
I bet there are several dozen opinions out there about how to do this best, but whatever it takes to keep the faces sealed is OK by us. We’ll keep using the shellac unless we find that it stops working.
One other suggestion… lug nuts help hold this whole sandwich together, so when you remove a wheel you should put a lug nut back on opposite the drum screw to help hold the stack together during service. Otherwise, the oil can start to run out, thus damaging the gasket and inviting leaks later.