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This is a common problem with the Avalanche among other GM models of this platform. The problem with your truck is the Encoder motor a.k.a. the (transfer case shift motor) that actuates the 4wd when you select 4wd at the switch the encoder motor will have to be replaced! You can send it to your local chevrolet repair shops.
I have a 2003 1500 4WD Avalanche. I baby this thing. It still looks brand new. I've never towed anything nor hauled anything heavy. I took it in because the 4WD was acting up. I rarely use 4WD (only when I go skiing and it's snowing), but occasionaly the 4WD status would be on Auto, 4WD Hi or N when I would start it. However, it would be in 2WD. Anyway, I took the AV in for the problem and they said the encoder motor needed to be replaced ($800). They also said the rear differential gears needed to be replaced ($2,200). It only has 33k miles on it! I'm scared now that this maybe an ongoing issue. I don't want to get rid of it, but maybe I should. :confused:
 
Why so many troubles with Avalanche rear axles and
none to speak of on C/K 1500's ?

Only difference is leaf vs. coils ?
 
This is a very common issue with the 8.6 locking differential, we have rebuilt hundreds in my shop and I never put the junk that GM used from the factory. If you are going to rebuild this unit go with an after market carrier, it will save you money and you will never need to open the cover again for a rebuild just do regular oil changes. Auburn lockers are what we install and in 15 years of using there products we never had a problem.
 
Why so many troubles with Avalanche rear axles and
none to speak of on C/K 1500's ?
No the trucks have the same issues we've rebuilt many. The big issue is servicing the unit regular, flush it out and refill with top quality oil. We use severe gear amsoil.
 
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