It should use an inductive pick-up at the tranny. One can easily check for a bad transducer by pulling the end out of the transmission and have someone watch the speedometer as you strike it with a large screwdriver. The needle should abruptly move if the transducer is good. On the otherhand, if all is well with the transducer, then speedometer gears are screwed. If you should have someone rebuild it, such as GLI? or GDI? on the west coast, make sure you tell them to TAKE OUT the optomistic error and make it TRUE for the actual speed. They can, they didn't when I sent mine, I fussed, they said send it back, and I said I didn't want another 2 week turnaround.