There is a bulletion for this to replace the encoder sensor. Easy to do. No soldering required. It also has a updated calibration for the module. You could try it your self but the dealer would have to program. here is a copy of the bulletion.
#03-04-21-001D: 4WD Switch Indicator Lights Flashing, 4WD Inoperative, DTCs C0327, P0500, P0836, P1875 Set (Replace Encoder Motor Sensor, Reprogram TCCM, Inspect Front Drive Axle Engagement Sleeve for Damage/Repair) - (Dec 4, 2003)
Some customers may comment that the Service 4WD light is on, the 4WD system is inoperative, the 4WD switch indicator lights are blinking or that a grinding noise is heard from the front axle.
Technicians may find DTC C0327 in the Transfer Case Control Module (TCCM) and/or DTC P0836 in the Transmission Control Module (TCM) and/or DTC P0500 and P1875 in the Powertrain Control Module (PCM).
It is possible that the module may be in a mode that will not allow any shifts or updates for the software or calibrations. If this occurs, the TREC fuse (in the engine compartment) must be pulled and reinstalled after 30 seconds. This should allow further operation and service of the system. If a C0550 code is found, this is an unrelated concern and SI diagnostics should be followed for this concern.
Important: For ease of reassembly, shift the transfer case assembly to 2HI for the NV263 (NP1), or Neutral for the NV246 (NP8) prior to removing any components. For information on placing the NV246 (NP8) transfer case in NEUTRAL, see the procedure at the end of this bulletin.
Important: DO NOT REMOVE THE SCREWS INDICATED WITH THE (1) IN THE ABOVE ILLUSTRATION.
Important: For proper timing and ease of reassembly, hold the gear in place as your remove the cover from the encoder motor assembly with your thumb or finger.
Important: Observe the location of the punch mark on the large gear in relation to the timing mark on the housing if the transfer case was placed in the 2HI for the NV263 (NP1), or Neutral for the NV246 (NP8). The timing marks should be within one tooth of proper alignment. If not, you must note the timing mark positions for reassembly.
Important: After removing the large gear from the housing, a dark gray phenolic spacer should remain in the casting where the bottom of the large gear resides. Locate this spacer and save for reuse.
Important: The sensor has two (2) keyed areas which must be properly positioned when reassembled. The bottom of the sensor has a positioning pin that must be positioned in the cavity in the housing. The sensor key must be properly positioned over the key way in the large gear. Follow the step by step instructions below for ease of assembly.
Notice: Not using the socket to press the sensor on may result in damage to the sensor.
Tighten Tighten the bolts in the sequence shown to 20 N·m (15 lb ft).
Important: When the right front axle tube is removed from the vehicle, several components may fall out. Position a receptacle such as the engine oil drain with screen under the front differential carrier to catch these components.
Important: The bevel on the outer circumference of the engagement sleeve must be positioned into the axle shaft tube assembly.
Tighten Tighten the bolts to 79 N·m (58 lb ft).
Tighten Tighten the stabilizer shaft nut to 10 N·m (89 lb in).
Shifting NV246 (NP8) Transfer Case into Neutral
Shifting NV246 (NP8) Transfer Case into 2HI
Sensor, Transfer Case Encoder, (NV246, NP8)
Sensor, Transfer Case Encoder, (NVG263, NP1)
Seal, Transfer Case Encoder Motor Cover
Screw, Transfer Case Encoder Motor Cover
Clamp, Prop Shaft
Sleeve, Front Drive Axle Engagement (9.25" Axle)
Sleeve, Front Drive Axle Engagement (8.25" Axle)
Parts are expected to be available from GMSPO on December 18, 2003.
Your first response was to replace the selection switch, and the TSB is replacing the encoder sensor. Are we talking about the same item. The TSB looks quite in depth. Will replacing the selection switch require any reprogramming? I'm a little confused? I have not checked the TCM for codes, but will.
I am at work, but have a service manual at home and will check also.
OK, The bulletin explaines how to replace the sensor inside of the encoder motor. Thats why its so long.
Another tech/Expert here (Vladgmru) told you about a selection switch. I don't agree with that.
Yes, It would need to be reprogramed. There is an updated calibration for the Transfercase Control module (TCCM) to work with this new sensor to prevent this problem and another problem from the module not comming on when you start the vehicle.
I'm sorry for the confusion, I normally don't respond to other experts information unless I see a problem with what they are saying.
The Transfer case module has its own set of codes that need to be checked. Most scan readers won't pull up those codes. You got a P1875 from the engine module.
Hope this clears up some things. Let me know if I need to explan something else
ThankYou for using JUST ANSWER
I'm sure you saw my initail question, but my main gripe is the 4WD selection switch is in a different posistion every time I crank up, and cannot be moved into another selection? Just to clarify, you believe the problem is in the encoder sensor, not the selection switch?
Is this selection switch a common failure?
The switch light up the positon the encoder is in. When you push a button on the switch, it sends a signal to the transfer case module. the module ignores if due to the code set in the module. The encoder sensor is off and sending a wrong signal to the module, which in make the switch light up different position.
You need to get codes checked in the transfer case module to confirm .
That makes sense. When I select a different drive, it blinks for about 20 secs or so, then returns back to the initial it was in.
My code reader does not read TCM, so I'll have to check with a dealer to read.
Is this TSB a high $$ fix throught the dealer?
I'm also a first time user to Just Answer, so will accepting this answer end all conversation, or can I revisit after I find out TCM codes? I want to pay, just don't want to cut my question off to soon.
I don't see the paperwork end of these repair, I think they run $300-500. Just a guess.
You can leave it open I guess, i'm not totally sure how it works on your end. You can always request me ar ping me. Thanks for Using Just Answer