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Just putting in my 2 cents. I had the AWD service light come on last year and there was no AWD. I ordered a new encoder motor from Rock Auto and that solved the problem.

The mechanic showed me the old unit as it was all ceased up and that's why it couldn't engage AWD.

Fast fwd to this winter, the AWD worked flawlessly until recently when I drove on wet snow (wet as in slushy/heavy rain - lots of water), I would lose my AWD function. I know there was a service bulletin out about water getting into the connectors and will short the system. it hasn't happened again but I will seal off the connectors with silicon when the weather is drier. Hope that will solve the problem once and for all.
Since my last post in March, the encoder motor doesn't engage AWD when its wet, so I was at 2WD mode. Until last week that I had the front wheel hub replaced, the encoder motor decided that its a good idea to engage AWD and lock the wheel hub.

Ordered another encoder motor from Rock auto and had it installed yesterday, it freed up the front wheel hub so no more wheel hoping at turns and it disengaged the AWD in dry conditions as it should.

Conculusion (for me): The connectors on the electrical (both ends) might let water in and screw up the sensor so it either engages or disengages the AWD. I have bought some liquid electrical tape and will coat all the openings at the connectors and hope it will last me a bit longer.

Also from experience (3rd encoder motor replaced), AC Delco unit lasts a bit longer than the Dorman aftermarket motor, but lets see if this Cardone unit lasts with the liquid tape.
 

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Since my last post in March, the encoder motor doesn't engage AWD when its wet, so I was at 2WD mode. Until last week that I had the front wheel hub replaced, the encoder motor decided that its a good idea to engage AWD and lock the wheel hub.

Ordered another encoder motor from Rock auto and had it installed yesterday, it freed up the front wheel hub so no more wheel hoping at turns and it disengaged the AWD in dry conditions as it should.

Conculusion (for me): The connectors on the electrical (both ends) might let water in and screw up the sensor so it either engages or disengages the AWD. I have bought some liquid electrical tape and will coat all the openings at the connectors and hope it will last me a bit longer.

Also from experience (3rd encoder motor replaced), AC Delco unit lasts a bit longer than the Dorman aftermarket motor, but lets see if this Cardone unit lasts with the liquid tape.
Good info! Hopefully some sealing work on the connectors will pay off...
 

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Alright, pulled the encoder motor out and took it apart. Not good. Could something happening inside the transfer case cause this or could this be an issue strictly limited to the encoder motor. I don't want to buy a new motor yet if there could be another issue. If I remember correctly, as it's been a while, I can manually rotate the front drive shaft.
 

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Update: put the encoder motor back together threw it on the car, and was able to get it to kick into awd before the motor locked itself up again, so that's a good sign. While I had it in the air, I changed fluids in the transfer case and front and rear diffs. Nothing funky came out with the fluid, so more good news. Back earlier in the spring, I actually picked up a junkyard encoder motor, but after taking it apart as well, it had the same issue. Looks like I'll be getting a new motor. Then it might be time to trade it off. Need something with better gas mileage.
 
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