Turns out after an independent shop looked at the problem and double checked everything. They too are recommending an engine rebuild. Ugh! I took it back to the dealer for a new crated engine with warrantee instead of a rebuild. I ask for the old engine if they are going to discard it, so we can look into it and find what the problem is. By the way, the dealer is working with me on the price. It is very competitive to the cost of a rebuild. Thanks to all who replied.

 

wow thats interesting. I guess there was lots of wear on the engine. But for some reason I still think its an electrical problem.

 

I had a 98 Chevy blazer and it had the same problem, low oil pressure at idle, it turned out to be there was a pick up tube in the oil pan that attached to the oil pump and reached to the bottom of the oil pan had fallen off. So when the oil built up enough in the bottom of the pan the oil pump could finally pump the blood to the rest of the engine. No idea what made me pull the oil pan off to check it out. Just a thought but it's worth looking at.