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mechanic says I need a new transmission

Car: Subaru, Outback, 1999     -    Back to Fix-It    -    Subaru Repair Manuals

Q.1999 subaru outback AUTOMATICl transmission. mechanic says I need a new transmission ($3200-$3500).
symptoms:
car was running fine but suddenly started thunking/lurching - it felt like I had a flat tire or something.
I pulled over and looked and everything looked fine.
I put the car in drive and reverse and the minute the car was in motion in either gear, the same THUNKING happened.
I have noticed in the last couple of days that the rpm will seem high enough for the car to shift into another gear but it doesn't right away.
There is no check engine light on. The car is undriveable. In the past year,
I replaced the head gaskets (whatever part of the engine that is). Since I spent that money, I went ahead and got new tires. Then I hit a deer and basically the entire front end of the car was replaced.
So... I've sunk some money into this car but I'm not sure if I should put any more $ into it. It has about 110,000 miles on it (the odometer works sporadically, hence the estimate).

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More Info required HI there! Does the a/t temp light flash when the car is running?

Addition No - there were no lights on.
I was up all night thinking about the "bad transmission" diagnosis.
I hate to second-guess my mechanic, but I keep wanting some sort of a miracle/different diagnosis!
The problem happened when I was turning around a corner (left), and the clunking seems to correspond to wheel rotation.
I am considering asking my mechanic (at the risk of insulting him) if when he put the car up, he tried to replicate the clunk/jerk by rotating the wheels with the car off or in neutral.

More Info required Is this happening on tight turns? Like pulling into a parking spot?

Addition This is the first and only time it has happened, and it bad enough that I had the car towed. I haven't noticed any problem with turning either direction before.

Answer OK. There is only one possibility I have in mind.
You said the clunk occurs when you turn. If the transfer clutches and solinoid are bad, this will occur. Just have yo try a simple test. Under the hood there is a small black box, I think it is on the passenger side on your year. Open the box and put a 10 amp fuse in there. It turns off the awd. If the noise goes away, then it is a transfer clutch problem and the trans doesn't have to be replaced. Just the clutch pack and solinoid. They wear out after a while and need replacement.
I would also suggest if this is the problem, you have the dealer take care of it. Last one I did was about $1,200, the transmission doesn't even have to come out of the car. Just something to think about. If this is not the problem, I suggest a used transmission. Price he is looking for sounds like a new one. Hope this helps

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