In the wake of the oil crisis of the 1970s, the American muscle car had effectively died off, the result of rising fuel costs and the advent of more strict safety and emissions controls imposed worldwide. As a result, the "big three" automakers (Ford, General Motors, and Chrysler Corporation), for whom muscle cars had been a steady and reliable source of income, began to suffer somewhat financially. Many of the great vehicles of the muscle car era had been either completely discontinued or had been painstakingly detuned to help keep them in compliance with new federal emissions regulations and the rising demand for better gas mileage. The Mustang, although still in production, had suffered greatly through this time; diminished power output and Ford's seemingly complete inability to come up with an attractive body style in the postfastback era were major issues. The Mustang had also been considered to be replaced by a joint engineering effort with Mazda, but Mustang enthusiasts protested, and the car that had been prepared to replace the Mustang was eventually introduced as the Ford Probe.
Ford began to make a major push forward with the Mustang in 1982, nearly completely reinventing every aspect of the vehicle, which included putting a new emphasis on the model's sporty nature. Just prior to this, in the fall of 1981, Ford decided to form a division that could oversee both the company's racing program and the production of limited-edition, high-performance, street-legal vehicles based on or taking technology from the race vehicles. Officially, the division was called the Special Vehicle Operations Department, but the public came to know them as simply SVO (S-V-O). Tasked with developing something that was both plainly American and competent to compete with entry-level European sports cars of the day, the team went to work on the new Mustang, deeming that it was the most obvious choice as a platform basis for a high-performance vehicle.
Turbocharged powerStill ultimately concerned with issues such as fuel consumption and emissions, SVO engineers opted to pass over the venerable production 5.0 liter V-8 in lieu of an updated, turbocharged, and stronger version of Ford's 2.3 liter inline four, originally used in the Pinto and Ford Mustang II. The installation of the four-cylinder engine helped with weight distribution, due to the engine being installed perpendicular to the front axle, thereby improving handling. Endowing the engine with an advanced, computer-controlled fuel injection system and an intercooled turbocharger system helped push power output to 175 horsepower, fairly high for the time. In addition, a "fuel grade" switch was added to the dash, allowing the driver to adjust the vehicle's performance level depending on whether premium or standard grade fuel were being used, as the engine was not installed with a knock sensor. A factory-installed Hurst shifter was made standard to improve feel and quickness. With fine tuning and the addition of a new water-cooling system, power output rose to 200 horsepower (149kW) for 1986 (205 horsepower (153kW) for 439 85.5 SVOs). Also, the 1986 SVO had new "aero" headlights. These headlights were designed for the 1984 model, but regulations would not allow them to be used until the mid-1985 update. The vehicle's standard Borg-Warner five-speed manual transmission was updated then, as well, receiving revised gearing to match the new 3:73 rear end ratio,
1984 | 175hp (130kW) @ 4400rpm | 210lb·ft (280N·m) @ 3000rpm |