New Process Model 246 Part -Time Transfer Case Electric Shift, 1999-On GM 1/2 & 3/4 Ton Trucks, Suburban, Tahoe & Yukon. Recommended fluid for NP246 part number 12378508 Autotrack lI 2 Quarts. The NP246 has a design problem, the pump can wear out the case causing premature failure and leaking. Magnesium cases are soft; aluminum pumps are harder. But before we think it's the transfer case we need to look at the big picture. On the full size, the front actuator is electric, not vacuum.
When in 4wd mode, a switch on top of the transfer case conducts 12 volts out to the actuator. Wire #50 (brown) is the 12v feed, and it conducts to the light blue wire (#900) to the actuator.
When shifted out of 4wd, the switch opens up and no voltage goes to the actuator.
Check voltage at the connector for the front actuator (at the front differential - it looks like a large bullet that threads into the front diff.) If it has 12 volts, the actuator is the problem. If it does not have 12 volts, check the transfer case switch and the power feed to the transfer case.
I'll assume it is the actuator, if the plug to the actuator is getting 12 volts when in 4wd.
The way this actuator works, is it is a sealed chamber that gets heated by voltage. When it heats, the pin in the end swells and pushes a shift fork in the front differential. The shift fork engages a spline on the passenger side of the differential, and boom! you have 4WD.
GM offered an upgrade to this actuator that is a motor instead of a heated device. However, it requires a small harness addition, a spacer, and a new actuator. It is about a $150 to $200 option.
If I were you, I would buy a new heated actuator. They are available at most auto parts stores, and are about $90. They are also on eBay for about $55 plus shipping. These are very easy to change - just thread out the old one, and thread in a new one.
Good luck, That actuator is usually the problem 90% of time. But also check the fluid level in the transfer case and front differential which would help indicate where the problem is.