If the rubber lip ring inside the gear of an automatic transmission gets chewed up and little pieces start floating around inside, it can cause several problems. First, the rubber particles can clog up various passages inside the transmission, causing a lack of lubrication or hydraulic pressure. This can result in poor shifting, slipping gears, and transmission failure. Additionally, the debris can cause damage to other parts including the gears, clutches, and valve body. If you notice any signs of transmission failure, such as slipping gears or poor shifting, it's important to take your vehicle to a qualified mechanic as soon as possible to avoid further damage.