We present a dynamic simulation of a wire rope involving both contacts with a winch drum and hydraulic systems using the finite element method. Rapid winch operation often causes disorderly winding of the wire rope, which is an important quality problem. Dynamic simulation is, therefore, required for design of the hydraulic winch system on construction machinery. The wire rope is modeled using by truss elements considering large displacement motion. The contact between the wire rope and the winch drum is modeled using by variable-length truss elements and bilinear spring elements. An improved Newton method is proposed for nonlinear dynamic analysis. Simulation results show that some lever operations result in rope looseness and intense pressure fluctuation.