Cylinder Head Problems - 3.7L specific only!

The root cause of GM Atlas engine valve failure is bad valve guides. The guides are dimensionally identical for all years but the guides in early heads (including early 3.7) failed prematurely. The guides are pressed in and are easily replaced with an upgraded version as part of a normal valve job. Any qualified machine shop that does heads can easily make them better than new!

A valve job will always include new valve seals but they are included in the gasket set and so they may not appear as parts related to a valve job. Valve guides can be repaired with a process similar to knurling but why when the wholesale cost of a new guide is like $2. each. Also why would anyone repair a guide that was no good when it was new?
My guess is that the dealer uses a "resale card" at the machine shop and the shop invoice to the dealer didn't include any tax just a lump price. With dealer mark-up I would expect their invoice to you included about $500. or so for the machine shop labor.

It looks like they didn't mark-up the machine shop cost as the $281 would be a typical wholesale cost for a 5 cyl valve job. I am a little concerned that a new cam timing set (chain, guides, & hydraulic tensioner) and water pump were not installed while they were off. I would expect a typical dealer to charge at least $500. for the valve work so they were fair with you.
In the old OHV days valve guides were just holes in the cast iron head. When they were worn they were knurled and reamed back to size. Hot rodders frequently had aftermarket bushings installed in the valve guides for better high RPM valve control & reduced wear.

The early motors have 10:1 compression & yours has 10.3:1. A good well sealed cylinder in either one should pump at least 200 lbs. You have one cylinder lower than the others but they are all showing signs on valve leakage which will only get worse.
The fix is a valve job and new (upgraded) valve guides. The ring, piston, & cylinder package on these engines seems to be excellent and provides a long useful service life so there is no need to go further than a valve job. That sucks considering the low truck mileage but it is worth repairing. Buying a used engine provides no confidence that it will be any better.

A problem is that most people are just getting leakdown tests which are not a true test of compression. A proper compression test can determine the actual pumping capability of a cylinder and it can differentiate whether the leak is the valves, the rings, or both.
A leakdown test just confirms that a leak exists. This tool originated in the 1960's as a quick check at the race track to see if you had damaged your engine between runs. Bent valves and broken springs were really common then. While it can provide confirmation that a major problem exists the result it is not a true diagnostic test. Why bother, just do a true compression test it only take a few minutes longer.

Last time I looked the GM reconditioned head was just over $1,000. but you are in the Bay area of California and have lots of other options. Just a quick net search turned up three Cylinder Head shops in Oakland alone. I have no info on them but the Oakland shops are: American, Kings, & Bay Area. Personally I used Dynicron Cylinder Head in Stockton for mine last year. A valve job w/guides should be about $300-350. for an I5.

Kjones, that is not surprising if the head was replaced before 2009. The valve guide issue was not resolved until 2009 production so all the heads before that date were built with substandard valve guides. The only good news is that replacing the valve guides & doing a valve job will fix it. There are no new heads available except for the "reconditioned" heads GM sells for something over $1,000 which is 3 times the machine shop price of installing new valve guides and a valve job on your head. The real expensive is the high labor cost for removing and replacing the head. At a minimum you would also need a new head bolt set, timing set, gasket set, and of course the head work.
A compression test is the best way to determine the condition of the valves and the cylinder sealing.
Good Luck!