Chevrolet four-wheel-drive trucks, while generally pretty tough as a whole, do not have the most stellar history when it comes to certain parts of the four-wheel-drive system. Every generation of four-by-four seems to have its own quirky little breaking points, from self-destructing hub bearings, to breaking U-joints, to failing transfer case snap rings to -- well, this one. The good news is that the rest of the assembly is fairly strong. The bad news is that one part of it will almost certainly self-destruct sooner or later.
This generation of Chevrolet truck, from 1999 to 2007, used the New Process 246 transfer case in General Motors spec -- or, NP-246 GM for short. As a whole, the NP-246 is a pretty tough unit, and has proven as generally reliable on the trail as any other New Process case, even when subjected to the massive stresses of heavy chassis, big tires and big engines. The NP-246 does have one fatal flaw, though. Depending on the mode of failure, it may first manifest as a pin-hole leak in the bottom of the metal case. In other cases the first notice you'll get may be a slight rattle, followed by absolute transfer case failure.
The NP-246's oil pump is on the output shaft, which is good since the oil pump will lubricate the case even while the truck is being flat towed, or while in two-wheel drive. The problem lay in the ring-like housing that goes around the pump, between the pump mechanism and the transfer case. On the outside of the pump, three large tabs protrude outward into recesses in the transfer case, holding the ring in place. A small, U-shaped, springy anti-rattle clip goes around the bottom tab, keeping it from knocking back and forth in the recess. The problem here is where the pump ring tab comes into contact with the rattle clip and transmission case.
The tabs on the pump ring are only about 1/8 inch thick, and practically knife-edged on both sides. As the pump ring engages the housing, the tab constantly beats against the rattle clip, in the corner of the case recess. The edge of the tab expresses all of its force in this corner, wearing the metal of the case away like a tiny jackhammer. Eventually, the tab will either break through the rattle clip and snap it, or just hammer the clip through the housing and eat away at the corner. The result is what begins as a pinhole leak in the housing, and quickly transitions into a large hole, and then a crack in the housing. Of course, that assumes the snapped clip doesn't break free inside the transfer case first.
Once the clip breaks, there's a good chance it will block oil flow to the rest of the transmission, or in some other way get around inside the complex mechanism and mess things up. Eventually, the transfer case will self-destruct either through lubrication, or because the pump breaks, or because the broken clip wedges somewhere unfortunate -- if the case doesn't split open like a rotten pumpkin first.
If your case develops a leak, don't slap some epoxy and tape over it and ignore it. That's like simply putting a bandage over a gunshot wound. You must tear the transfer case apart and fix it before it self-destructs, if it hasn't begun to already. Once this begins to happen, you can tear the case apart, TIG weld the hole shut, repair the recess with a die grinder and replace the clip. But it will only happen again. The smart thing is to buy an aftermarket upgrade pump housing like the billet aluminum unit currently -- as of 2013 -- offered by Duramax and Allison specialists Merchant Automotive. This approximately $120 upgrade uses much wider tabs that lack the knife-edge that causes this problem in the first place. The thick tabs on this aftermarket unit evenly distribute the load from the pump, ensuring a long and healthy life for your Chevy's NP-246 transfer case.
