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In the early 1960s, the American car makers noted the growing popularity of imported European - and especially British - sports cars and roadsters. Losing sales to the likes of MG, Triumph, Jaguar and Austin-Healey, the then Ford boss Lee Iacocca and product planner Donald Frey came with up a proposal for an affordable, fun sports car that would appeal to the baby-boom generation just entering the car market, and take over from the shelved two-seater Thunderbird. The first prototype, Mustang 1 - named after America's fighter aircraft - was assembled in Los Angeles and featured a steel tube frame with an aluminium body, an integral rollbar, fixed seats but racing-style adjustable pedals and steering, and, unusual for the time, four-wheel independent suspension. Thoroughly state-of-the-art, all the shock absorbers and springs were adjustable and there was rack-and-pinion steering. Power came from Ford's 1500cc V4 engine, front-mid-mounted and tuned for 90bhp with a single Solex carburettor or, in a competition prototype, 110bhp with twin Weber carbs and a crossflow manifold. Mustang 1 had a four-speed transaxle manual gearbox, front disc brakes and weighed less than 1200 lbs; although the engine was small, its light weight ensured a top speed of around 120mph.
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A two-seater prototype was demonstrated by race ace Dan Gurney at the US Grand Prix at Watkins Glen in October 1962; tests at the time put 0-60mph acceleration at around ten seconds and fuel economy at 30mpg. It met with a mixed reception, however; enthusiasts raved about the car, but it was considered too futuristic, unusual and expensive to make to be suitable for mass-market production. Instead, Iacocca ruled that Ford must keep it simple: the production Mustang was to be based on Falcon and Fairlane saloon components, it was to be visually stunning but technologically conservative, and above all, it was to be cheap both to produce and for customers to buy. 1963 saw the longer, wider Mustang II prototype at Watkins Glen, an altogether different car.
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