Transfer Case Encoder
WARNING: This page is about a different car, the 2007 GMC Sierra and 2007 Chevrolet Silverado. However, it is still accessible from the selected car via links, so may be relevant.
The encoder is mounted to the transfer case motor/encoder assembly and is replaced as an assembly. The encoder converts the shift detent lever shaft position, representing a mode or range, into an electrical signal input to the transfer case shift control module. The module detects what position the transfer case is in by monitoring the voltage returned on the encoder signal circuit. This voltage translates into AUTO 4WD, 2HI, 4HI, NEUTRAL, and 4LO or in transition between gears.