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Feel free to re-word the title if there's a better way to state it, it sounds awkward but I'm not sure how else to summarize.

2004 Trailblazer with AWD - There's a dial on the dash that lets you switch from RWD to automatic AWD, AWD high, and AWD low. Each mode has an indicator light above it to let you know which is active. Normally, when you switch from one to another, the light above the new mode flashes for a second while that mode engages, and then stays solid.

Lately, the light no longer stays on in any mode. When you switch modes the light above the new mode will flash for several seconds (far longer than usual) and then goes dark. I can't tell for sure whether it has actually switched modes or not, and I don't have an easy way to tell while driving. To confuse things further, some days it appears to work fine; the lights change as normal.

Is this just a faulty light or sensor? Or should I be getting the drive system checked out? Is there another way I can verify that it's changing from RW to AW?

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The 4wd/awd systems on the GM's have a few different electrical components involved and are fairly easy to diagnose with the right testing equipment.

If you can get it to shift into 4wd high, and there is binding when turning on pavement, there is a really good chance that the automatic awd is also working.

I suggest to bring it to someone that has the ability to scan for codes in the transfer case control module and go from there.

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