GM Transfer Case - Averting Disaster

Mandatory ’01 to ’07 GM Transfer Case Fix

Mike McGlothlin
Jan 1, 2013
Photographers: Mike McGlothlin
Any time a catastrophic failure can be avoided by performing a simple upgrade, it’s worth looking into. Nickel and dime precautions taken now can save you big money and plenty of headaches later on. This month, we’re exposing a common problem found in the NP261XHD and NP263XHD transfer cases found in four-wheel-drive ’01 to ’07 Chevy and GMCs (and basically every four-wheel-drive GM from ’98 to ’07). It’s the kind of problem we’ve all grown to hate: It’s inevitable, and it surfaces without you knowing it.
Photo 2/19   |   Merchant Automotive’s transfer case upgrade kit for ’01 to ’07 Duramax-powered Chevys and GMCs comes with a new pump housing, transfer case-to-transmission gasket, RTV silicone, blue Loctite, and a 2-quart bottle of performance transfer case fluid—all for $99.99. Merchant also offers a magnetic drain plug (red arrow) and a replacement fill plug (yellow arrow), both of which are made from 304 stainless steel. The two plugs together run $12.95. Regardless of your driving habits, Merchant Automotive recommends new fluid annually, or every 50,000 miles.
Pump Rub
Within the NP261XHD and NP263XHD transfer cases, a gear pump is used to supply pressurized oil to the planetary gearset and drive sprocket sleeve. Due to the pump being driven off the output shaft, its housing floats inside the rear housing of the transfer case. Over time, one of the five indexing tabs on the pump housing wears through the factory- installed anti-rattle clip (used to fill in the tolerance between the pump housing and the transfer case housing) or effectively uses it to dig into the transfer case housing. This friction is often referred to as pump rub, and it eventually leads to a small hole in the transfer case, followed by a fluid leak. But due to the location of the hole, fluid won’t escape unless the truck is moving. So the problem is hard to detect and is usually discovered after the transfer case has been damaged from lack of lubrication.
Photo 3/19   |   Perhaps the worst aspect of pump rub is that it occurs whether or not you use four-wheel drive. However, the problem surfaces faster in trucks that do a lot of city driving, as opposed to steady-state, highway driving. For our install, the recipient of the pump upgrade kit was this electronically shifted version of the New Process Gear NP263XHD, from an ’06 GMC Sierra 2500HD. Flynn’s Shop, located in Alexander, Illinois, completed the job for us in just four hours.
Proactive Fix
With a reputation for bulletproofing virtually every aspect of Duramax-powered Silverados and Sierras, Merchant Automotive came up with a simple, affordable fix for the pump rub issue. The company developed an improved pump housing and now offers an all-inclusive upgrade kit for less than $100. Follow along as we install it in an electronically shifted, NP263XHD transfer case.
Photo 4/19   |   Before the transfer case can be split, the snap ring that holds the rear support bearing (on the output shaft) in place has to be released. With the output shaft access plug and output shaft speed sensor removed (arrows), Flynn used snap-ring pliers and a flat screwdriver to simultaneously release the snap ring and push the reluctor gear forward (toward the front of the case).


Merchant Automotive
Zeeland, MI 49464
Flynn's Shop
Alexander, IL



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