I had my exhaust coming out of the body in front of my wheel, I used a double walled tip and 5mm heat resistant vacuum hose to protect the truck. There should be pics in my profile, dont have any on my phone right now.
I went with a 6.5" Ready Lift and kept 18 wheels (-12 offset) with 35x12.5 BFG KO2's, there was some rubbing when I had the wheels at full lock when turning but a few hit with a hammer cleared that right up.
I have the same engine/gears but with a 6.5" lift, I went with 35" tires on 18" wheels and I couldn't really notice the power loss driving around town. It's on the highway when you'll go to pass someone that the loss will really be noticeable. As for your MPG loss I can't say because I have a 6.5" lift not the 2.5" level, I did however drop down to 17-19 mpg on the highway from 22-24.
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I have the same engine/gears but with a 6.5" lift, I went with 35" tires on 18" wheels and I couldn't really notice the power loss driving around town. It's on the highway when you'll go to pass someone that the loss will really be noticeable.
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I have the 5.3L with 3.42's and after the 6.5" ready lift and 35" tires to me there wasn't much difference in the drive, where I really noticed the difference is on the highway trying to pass when I'm already doing 75/80 there wasn't the same passing power and quickness as before the lift/tires.
So instead of regearing my differentials to get some power back I just bought a blower and got my power back that way :-)
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I don't see a problem with a 12.5" wide tire but if you are going with a 22x14 wheel set up then yes I can see there still being some rubbing. Just do a little trimming and you'll be fine.
I can't hear mine on the highway but I'm sure that's due to a combination of my kids laughing their asses off at Elmo in the back seat while I attempt to listen to the radio
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