SVO is an acronym referring to Special Vehicle Operations, Ford Motor Company's racing division formed in 1980 to oversee all motorsports operations, distribute performance parts developed in racing programs, and develop high-performance production vehicles derived from motorsports technologies..[2] Although it departed both physically and mechanically from any prior version of the Mustang, it held the same spot within the lineup, both in terms of performance over "lesser" variants and in prestige, as had variants such as the Shelby-tuned and "BOSS" Mustangs of the 1960s and 1970s.

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 financially.

Many of the vehicles of the muscle car era had been either completely discontinued or had been detuned to help keep them in compliance with new federal emissions regulations and the rising demand for better fuel economy.

[3]: 288  During the 1970s, although the Mustang continued in production, its performance and image had suffered greatly;[citation needed] diminished power output and Ford's inability to come up with an attractive body style in the post-fastback era were major issues.

[3]: 287–288  SVO was expected to develop a limited-production passenger car, ostensibly to transfer the team's racing success to the streets, but ultimately also to help fund its operations with added revenue.

The engineering team working on the new Mustang SVO was led by Glen Lyall; Bob Negstad handled chassis development.

[3]: 290  Ford President Donald Petersen called it "our most definitive effort on the American scene to put together the finest we have in the way of a smaller-displacement, higher-revving turbocharged kind of touring car".

[4] With Ford continuing to make year-to-year decisions about the discontinuation of the Fox platform Mustang, the SVO was seen as both a potential celebratory edition and a bridge to future turbocharged performance vehicles.

The four-cylinder engine was chosen over the V8 because SVO wanted a high tech solution and, in order to get the handling dynamic right, they had to transform the weight distribution of the platform.

Fitted with a Garrett AiResearch T03 turbo,[8] Ford's new state-of-the-art EEC-IV controlled fuel injection system, it also broke new ground with first air-to-air intercooler used domestically.

[3]: 302  The vehicle's standard Borg-Warner T-5 five-speed manual transmission was updated in 1985, receiving revised gearing to match the new 3:73 rear end ratio.

Negstad tightened the shock valving in 1985 and again in 1986, noting "people assumed you were supposed to pay a little punishment for this love affair of driving this car.

"[3]: 302 Interior was only available in charcoal grey (leather or cloth) and standard features included adjustable sport seats with lumbar supports and a leather-wrapped tilt steering wheel, shift lever, and emergency brake handle, which were not normally found on small American coupes.

Just six major options were available: air conditioning, a cassette tape player, power door locks and windows, a flip-up sun roof, and leather seat trim.

"[9] In a follow-up comparison report for PM, the magazine called it "a kind of modern-day Shelby Mustang GT-350" but compared to the Mustang GT V8 that was included in the comparison, the SVO "delivers acceleration identical to the V8, 20 percent worse fuel economy and absolutely no low-speed torque" and concluded it was "unsuitable and dangerous on the street because the turbo power comes on so suddenly".

[12] The car that Ford had supplied for the comparison had shaved tire treads to enhance performance, so PM tested another example later, writing "the ride is really excellent for a sports car ... with 30 hp less than the Mustang GT V8, and much less weight in the nose, the SVO handles a lot better, too"; although there were several nuisances related to seating position and controls, PM concluded the Mustang SVO was "a commitment to high performance after so long a drought in Detroit.