Alongside the Mercury Cougar XR7, the Thunderbird became more competitive in the best selling reasonably priced intermediate personal luxury car market against the Chrysler Cordoba/300, Dodge Charger/Magnum XE and the General Motors A-body quartet of the Buick Regal, Chevrolet Monte Carlo, Oldsmobile Cutlass Supreme and Pontiac Grand Prix.

Although not as deliberate a downsizing as what was to come to future Ford cars, the 1977 Thunderbird was shorter than its predecessor, shedding nearly 10 inches (254 mm) of length and 900 lb (408 kg) of weight; height and width remained essentially unchanged.

The 1977 Thunderbird was created on the existing intermediate car platform by recycling a select mix of body, interior and trim parts from the previous year's Ford Elite, Mercury Montego and Mercury Cougar combined with all new styling from the doors back to create a dramatic new Thunderbird look.

Although the smaller engines had lower output than the 460 V8, the lighter weight did compensate towards overall performance; the 400 was dropped in 1979 with the introduction of CAFE requirements.

It was originally available in only two colors—Diamond Jubilee exclusive "diamond blue" metallic, or "standard issue" ember metallic—both with matching velour cloth seats with a "biscuit" design.