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This is an insecure approach. Dictionary style attacks now can account for phrases from vast libraries of literature, pop culture, or anything else you're likely to remember.

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But the suggestion is to carry out a simple hash on the input phrase — one could use the second or third letter, for instance. (Or the first, second, third, first, second, third…)

How could a dictionary-style attack predict all possible such arrangments?

Why not? The only limit on password cracking techniques is combinatorial complexity. This gives an overview: http://arstechnica.com/security/2013/10/how-the-bible-and-yo...

But do they take into account obscure maintenance manuals for foreign cars?

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