I just bought a 98 GMC 2500 the other day. The guy said it started to not shift out of second gear and he didn't want to spend the money to have it fixed. I really don't think it needs a rebuild because the fluid is nice and red and smells normal. There is no shavings or burnt smell to the fluid at all and it is full. The truck has 166K miles but the trans has been rebuilt once already because I can clearly see the evidence of it being removed and done. So the trans wouldn't shift out of 2nd and the speedometer is jumpy and barely moves at all. Also the ABS light is on but the brakes seem to work excellent. Today I unplugged the output speed sensor on the tail of the transfer case and got it to shift into 3rd but it jerked hard when it did. I should also add that it never "slips" like the clutches are bad. I'm thinking it might just be a sensor or bad wiring? Any help is appreciated!

 

Just for everyone's benefit in the future I figured it out(all by myself since no one replied with help). It ended up being the output speed sensor in the transfer case tail shaft. Advance Auto and autozone doesn't even show it as an option! They only have the input and output in the trans listed. The output in the trans is 2wd only as the 4wd is mounted in the Tcase. I purchased a new sensor on ebay for $10.47 shipped in 3 days. Soon as I put it in the speedometer started working and the trans shifted through all the gears as smooth as silk!!! I just couldn't believe a $10 sensor could cause so much trouble. Im positive shops have charged people for a full rebuild when it was a simple sensor so its worth a try in the future for you guys. My fluid was clean and smelled fresh so if your fluid is bad than a sensor wont help.

 

Thanks for coming back and telling us what fixed it. So many times folks don't do that. Glad you got it going without much cost. Good luck with it.