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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).

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

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