TEAM IACOCCA/SHELBY : The High-Performance Masters Have Abandoned the V-8. Now They're Turning Dodges Into Hot, Limited-Edition Cars.

David Barry is a Los Angeles writer.

CARROLL SHELBY WEARS suits now. The trademark boots and black cowboy hat from the days when he headed the fabled Cobra racing team in the '60s come out only for publicity shots. The railroad- stripe overalls from his days as a champion race-car driver in the '50s are history. Tonight, seated in a private dining room in the Las Vegas Hilton, the 64-year-old Shelby--Ol' Shel to his fans and Carroll to his friends--looks comfortable and elegant in a dark suit and black shoes.

It's the weekend of the National Automobile Dealers Assn. Convention in January, the night before Shelby's induction into the Automotive Hall of Fame along with Ford Motor Corp. chairman and chief executive officer Donald E. Petersen. The dinner is a tribute to Shelby given by Chrysler Corp. chairman Lee A. Iacocca, 62, best-selling author, American folk hero and longtime Shelby friend.

"Earlier tonight, Carroll leaned over to me," Iacocca relates to the assembled guests, "and said: 'Jeez! Tomorrow I get inducted in the Automotive Hall of Fame, and I'll be sitting up there next to Petersen!' I said, 'So?' And Carroll said, 'I'm suing him for 30 million bucks!'

"That's typical Carroll," Iacocca says after the laughter subsides. The typical refers to the down-home Texas country boy Shelby plays despite the multimillion-dollar scale of almost everything he does, including his legal dispute over Ford's recent use of the model designation "GT-350," which the company affixed to special-edition '84 Mustangs. Shelby says he never gave the trademark to Ford, which he used first for a series of Shelby-produced high-performance Mustangs in the '60s, back when Iacocca was on his way to the Ford presidency and Shelby was on his way to becoming the auto enthusiast's Chuck Yeager.

"Carroll's been my friend, my sidekick for 28 years," Iacocca says over dessert. "By bringing Ford into international sports-car racing, he changed my life. He brought the company--and me personally--into a world of glamour and excitement I had had no way of knowing or experiencing."

That excitement was partly due to the record-shattering AC Cobra that Shelby built for Ford. An aluminum-body, two-seat roadster with a powerful Ford V-8, the Cobra won two national racing championships between 1962 and 1966 and earned Ford the prestigious World Manufacturers' Championship, beating Porsche and Ferrari, in 1965. The Cobra redefined the concept of high-performance automobiles on the street and on the track with acceleration records that remain unbroken more than 20 years later.

"I remember the first time I went for a ride with him on the test track in one of his Cobras," Iacocca says. "I got in the car with him because I had already decided speed and cars wouldn't kill Carroll--women would."

Shelby, who has had two marriages, two divorces and numerous girlfriends, laughs heartily at Iacocca's good-natured ribbing. His handsome, creased face crinkles in the smile that graced a 1957 cover of Sports Illustrated as two-time national road-racing champion; in 1959 he became the first American winner of the 24 Hours of Le Mans, the world's longest and most prestigious sports-car race. After a heart murmur forced Shelby to end his racing career, he put together the team that scored a 1-2-3 sweep for Ford at Le Mans in 1966.

Twenty years later, Shelby is again building performance cars and helping his friend Iacocca sell them--this time for the Dodge division of Chrysler. In the '60s, the pair's main competitors were muscle cars made by other American auto builders. This time, they're out to beat the fuel-efficient, high-performance machines of Germany, Sweden and, especially, Japan.

"CARROLL WAS Mr. Excitement back in the days at Ford," Iacocca says as the coffee is brought to the table. Iacocca himself was fired by Henry Ford II in 1978 (a year in which company earnings exceeded $1 billion) and went from there to his legendary success at Chrysler, taking the company from near-bankruptcy to a record $925-million profit in only five years. "He's Mr. Excitement for us now at Chrysler."

At Iacocca's request, Shelby returned to the car business in 1982, as a performance consultant. That same year, he agreed to head the Dodge Shelby Performance Center, a subsidiary of Chrysler, in Santa Fe Springs. Last year, Shelby Automobiles in Whittier was formed for limited production of Dodge-based, high-performance Shelby cars.

Shelby's name has been linked with high performance since he won his first race in 1952, and the rekindled Shelby-Iacocca auto-business relationship is a move to gain back ground lost to Japanese imports in the small-performance-car market. Shelby automobiles are known for glamour and excitement--cars that look as fast as they really are.

But there is no aura of speed or glamour in Shelby's first product for Dodge, the limited-production, $11,719 Omni GLH-S (for "Goes Like Hell--Shelby"). It's small and ordinary at first glance, except for the tachometer, the night-fighter-black paint and the husky sound that the engine makes as Shelby revs one up for a demonstration at the Dodge Shelby Performance Center a few weeks after the dealers' convention in Las Vegas.

Shelby attacks the test track, hurtling through slalom gates, making lightning transitions from acceleration to deceleration, right turns to left. The car claws and smokes around the pylons at race-track velocity. His passenger is pinned to his seat back, and, when Shelby brakes, the passenger is jammed against the shoulder belts. The car goes faster through turns--without spinning or sliding--than would seem possible.

"That's my idea of a fun performance car," Shelby says after the demonstration.

But it is, after all, a Dodge Omni. Why build performance into a small-engine, front-wheel-drive, four-door compact sedan with the sex appeal of a cargo container?

"I wanted to take the plug-ugliest little box Chrysler made," Shelby says with his usual indifference to the possible corporate consequences of his words, "and turn it into something that could whip a Ferrari or a Porsche, at a price the average guy can afford--the guy making $20,000 or $25,000, with a wife and couple of kids."

In 1986, the only year his GLH-S was sold, he boasted in AutoWeek magazine that "the Omni GLH-S has the acceleration, handling and top speed to outrun a Porsche 944 . . . and I guarantee it'll whip a Ferrari 308GTB on a race track." His remarks drew outraged protests from Ferrari lovers, but no one has responded yet to his challenge for a race between the Ferrari and a GLH-S at Willow Springs Raceway, on the edge of the Mojave Desert.

"The Ferrari lovers did a lot of whining," Shelby says with a chuckle, "but no takers. I'm still waiting."

HOW DID CHRYSLER AND Shelby turn out an econobox capable of beating a Ferrari or a Porsche? The race-winning Cobras and Mustang V-8s in the '60s were made into hod rods with screwdrivers and wrenches, sweat and elbow grease. All of that has given way to computer-controlled ignition and fuel-management systems. What Shelby has done is update '60s-style American hot-rodding for the '80s. The seemingly contradictory goals of improved power output and increased fuel economy have led to performance improvements undreamed of two decades ago.

The acceleration and performance figures recorded for the Omni GLH-S by auto-enthusiast magazines put it handily ahead of the $25,000 Porsche 944 and the $55,000 Ferrari 308GTB. Despite its boxiness, the GLH-S can accelerate from 0 to 60 m.p.h. in 6.7 seconds and can cover a quarter-mile from a standing start in a blistering 14.9 seconds, contrasted with 8.3 seconds and 16 seconds for the Porsche. Similarly, the GLH-S outdid the Ferrari in all but top speed. The GLH-S clocks in at 135 m.p.h. But the Ferrari's 15- or 20-m.p.h. edge would not be a factor on any California race track because there isn't a track in the state that has enough straightaway for a Ferrari to hit 150 m.p.h.

"I'm not saying I built a better car than either of those two," Shelby says. "But it's a hell of a lot more bang for the buck. And that's what I like making."

Shelby doesn't need to say that making the Omni faster does not make it better than a Porsche or a Ferrari; no one would take him seriously if he did. There's a big difference between faster and better . But Shelby's claims for the GLH-S garnered one of the things Iacocca wanted out of Shelby: attention from the press.

"We were making cars and selling them, but nobody was writing about them," Iacocca had said earlier. "To get ink, we turned to the man the auto writers always enjoy writing about: Carroll Shelby."

Shelby's boast of the GLH-S as a European GT car beater can be matched by other American car makers. Ford's $13,000 V-8 Mustang 5.0 GT and Chevrolet's $16,000 V-8 Camaro IROC Z28 have both turned in faster times than the Porsche or Ferrari. But it isn't American muscle-car speed--equal to or greater than that of European GT cars, which cost two to three times as much--that's new. What is new is that the GLH-S packs American V-8 muscle-car performance into a four-cylinder economy car.

Shelby didn't jump at Iacocca's first invitation to join Chrysler in the early '80s. During Detroit's roller-coaster economic ride of the 1970s, Shelby was building other businesses--a chili-mix and a car-wheel-manufacturing companies--into corporations that were grossing $40 million a year each by 1986. When Iacocca called, Shelby waited to make sure that Chrysler was on solid footing.

And then he opted for a four-cylinder performance-car engine, rather than the V-8 power he was known for.

"When Lee asked me to help him out with performance," Shelby says, "I decided to go with the front-wheel-drive economy setup because it would have looked decadent to plan a V-8 performance car. Nobody thought that oil prices would stay as low as they did and that V-8s would be in so many cars today."

Shelby is convinced that oil prices will rise again and squeeze the American economy--particularly the auto industry--in the same pincer grip that they did in the '70s.

"When the next oil-price crunch sends customers rushing to small, fuel-efficient imports, the way they did twice before," he says, "the auto makers who are relying on gas-hungry V-8s for performance are going to get caught short."

Not Chrysler. And if Shelby had his way, Ford and General Motors would be equally committed to developing small, fuel-efficient performance engines.

"Performance isn't just something to have fun with," Shelby says. "It sells cars. A performance image sells cars. The Europeans learned that, and so did the Japanese. While Detroit was making cheap economy cars with no performance to try to get back the customers they lost, the Japanese were developing turbochargers, twin-overhead cams and four-valve heads for almost every model."

Turbocharging, by using otherwise wasted exhaust pressure to spin a turbine and compress the fuel-air mix for a more powerful combustion, can almost double an engine's power output with little loss in reliability. So-called four-valve heads improve performance further by doubling the number of valves per cylinder. Doubling the number of camshafts allows for still higher power output. These terms, which used to appear primarily in auto-enthusiast magazines, now appear in car ads on TV--most of them for Japanese cars.

"Four-wheel-drive, four valves, twin cams and turbos are all buzzwords, when you come down to it," says Shelby, whose Santa Fe Springs engineering crew has developed a four-valve head and an advanced turbocharging system. They're now working on the four-wheel-drive performance configuration established by Porsche, Audi and other race-car builders that's considered the state of the art.

"But once the upscale sector of the buyers--the yuppies--get used to hearing about (performance features), they want cars that have them, and they're willing to pay more for a car that's got them. You know what the problem is in this country? Half the guys making marketing decisions in Detroit don't have the faintest idea what four valves and twin cams and turbos are.

"And not only do they not know, most of them are just corporate bean counters who'd just as soon be selling washing machines as building cars. They don't realize they can't make money without building a product people want to buy, instead of something their computer projections tell them will make profits.

"Of course, I'll get in trouble with practically everybody in Detroit if you print half of what I say," Shelby adds with a grin.

Shelby and Iacocca talk the same way, though Shelby's outspokenness is smoothed by a Texas accent, while Iacocca's has the coarse edge of the urban East. But the blunt talk and the equally blunt thinking are probably important to their friendship, an unusually enduring one in the volatile world of automobile production.

"Carroll wasn't always the most popular guy back at Ford when he used to come around telling us the cars we were making were no good," Iacocca says. "He's not the most popular guy when he comes around at Chrysler telling us the same thing. But for 28 years, he's been my sounding board."

While Shelby and Iacocca have similar viewpoints, they have markedly different styles. It is part of Shelby's genius that he can directly dispute a major corporate judgment without burning bridges. Iacocca's confrontational style on the feudal turf of the Ford Motor Co., while undeniably a factor in his success there, also led to his eventual ungraceful dismissal in '78.

"Carroll was the only guy who could really get Mr. Ford to do whatever he wanted," says former Ford public relations executive George Merwin.

"The man could just charm the hell out of Mr. Ford and end up getting whatever he needed for his Cobras or his racing team. He's that way with everybody. With Mr. Ford, he'd use charm. But just as often, with anybody, he'll say exactly what he feels like. And he talks the same whether he's drunk or sober."

Iacocca said the same kind of things, according to Merwin, but in a different style.

"I can remember Iacocca in a meeting at Ford," Merwin says, "puffing on that cigar of his, saying, 'The problem with this company is half the guys in charge of marketing would just as soon be selling nuts and bolts as they would cars. I don't know--maybe they'd rather be in ladies' underwear.' "

SHELBY'S ENTRY INTO car building--as the creator of one of the most famous automobiles of all time--led Ford into big- time racing. That in turn led to Shelby's friendship with Iacocca, whose interest in racing and high performance had been limited to what they might do to help Ford sell cars.

"Iacocca was and is a very pragmatic guy," says auto historian Leo Levine. "I don't think he was performance-oriented himself. He was interested in anything that would help sell cars, and if he saw performance selling, then he wanted to go after performance."

In the early '60s, GM and Chrysler were both ahead of Ford in high-performance image, Chrysler with success on the drag strip and Chevrolet on the NASCAR stock-car racing circuit. It was Shelby's idea to build an American-powered car that would win against Ferrari, Maserati and Porsche in sports-car racing. His dream car, the Cobra, was in his mind long before he began building the prototype. He was a terrific success as a driver, but in 1961 there was neither the big-time TV sports coverage nor the sponsorship to make championship race-car driving the lucrative career it is today.

"I never saw racing as anything more than a means to an end," Shelby says. "Racing was a way to make a name so I could do what I had always dreamed about--build my own car."

After the discovery of his heart murmur in 1960, Shelby moved from Texas, where he grew up, to Los Angeles, the hot-rodding center of the world. It was the perfect place to build a hybrid lightweight, V-8-powered, foreign-body roadster that would win on the track and sell on the street. A lightweight, American V-8-powered sports car (unlike the powerful but heavy Corvette) was a simple concept on which others had spent millions. Shelby was one of the few to try it with no money--and virtually the only one to succeed.

The official story is that in 1961, Shelby heard that the British AC sports-car company had lost its engine supplier. He went to England to propose that AC ship him cars, on credit, to California, where he would install Ford V-8s. The V-8s would turn the already quick ACs into rockets. Shelby would race them and sell them as consumer sports cars on the strength of their victories, bringing glory and riches to all involved. Impressed with the concept, and the assumed commitment from Ford, AC agreed.

Then Shelby told Ford that AC agreed to provide the cars and asked Ford to provide engines--on credit. Ford's pay-off would be a hood plaque proclaiming "Powered by Ford."

But the pitch to Ford included a hook: In return for engines on credit and financial support for the racing program, Shelby would deliver Ford a World Manufacturers' Championship.

In its first race, in 1962 at Riverside Raceway, the AC Cobra outran the competition before it was sidelined by mechanical problems. The same thing happened in the second race. But by the end of the first racing season, Shelby's engineering staff had corrected all the problems. The AC Cobra took a national championship in its second season and the World Manufacturers' Championship in 1965.

The glamour of sports-car racing, especially on the European circuits, appealed to Henry Ford II, who had already tried and failed to buy Ferrari. In 1966, the Cobra racing program was shunted aside for a Ford race car called the GT-40, which eventually won Le Mans in a team effort that, under Shelby's leadership, gave Ford a 1-2-3 sweep.

In 1965, at Iacocca's request, Shelby produced a modified Mustang called the GT-350, which boosted the image of the Mustang at the beginning of Detroit's muscle-car era. But Shelby's interest waned in 1968 after Cobra production was stopped and GT-350 production was moved from the small facilities in Southern California to a mass-production plant in Ionia, Mich. Mass production blunted the fine edge of performance that Shelby took pride in. The advent of emission-control regulations in 1968 also diluted enthusiasm for V-8 performance. Shelby foresaw the demise of performance cars and left the business of making GT-350 Mustangs to the Ford Motor Co. He bought a horse ranch and pursued cattle-breeding and real-estate ventures in Texas. He also ran a big-game-hunting safari business in East Africa.

Iacocca and almost every other Detroit auto executive were facing rough times. The 1974 oil embargo would spell the end of the long-running boom for American cars, and the first wave of domestic economy cars built in response to Japanese imports was not a success. In the late '70s and early '80s, when oil prices stabilized and Americans had gotten used to paying a dollar a gallon at the pump, some buyers went back to big cars. But although full-size American cars were selling well, a growing market sector was buying European and Japanese imports.

Now, the new Chrysler-Shelby alliance, with its emphasis on performance over economy, is clear evidence of the still-broadening appeal of Japanese automobiles, which first attracted only economy-car buyers. Japanese auto makers tapped a previously undefined market sector with sports-car performance and upscale styling in low-priced, compact, front-wheel-drive sedans--cars like the Honda Accord, the Mazda 626, the Nissan Pulsar and the Toyota Corolla. The situation is grim, Shelby thinks, but far from hopeless. Detroit can win back the consumers now buying European and Japanese imports.

"WE JUST GOT to get over this idea that American products aren't any damn good," Shelby says. "We can build just as good performance cars as the Japanese, the Germans or the Italians. Hell, we can build any damn thing we decide to do. And we can do it as well or better."

He is sipping wine in the hilltop Bel-Air house that he shares with a massive Labrador named Jaspar, a cat and sometimes a girlfriend. The house is one of several Shelby residences, which include luxury abodes in Michigan, Nevada, Texas and on an island off Baja California.

Having come in through the side door of auto manufacturing--via racing and limited-edition car production--Shelby enjoys many of the perks that his friend Iacocca has attained at the top of the ladder at Ford and Chrysler. But it's hard to imagine that Shelby was ever tempted to enter the corporate big time.

"I don't know how he ever stood the bureaucracy at Ford," Iacocca says. "I don't know how he can stand it now at Chrysler. But I can tell you, with his performance genius and personal glamour, he's one of our most valued assets."

The Dodge Shelby Performance Center, where Shelby oversees an engineering staff in advanced performance development, was deliberately located far from Chrysler headquarters in Detroit.

"We can get things done a hell of a lot faster and more efficiently out here than they can in Detroit," Shelby says. The performance developments, refined and market-tested by Shelby Automobiles in Whittier, ultimately find their way into Chrysler mass-production lines. Still, his product development is limited by Chrysler production goals and resources.

"We've got to work the best out of what we've got," Shelby says. "But we're doing damn well for what we set out to do. It's the executives in Detroit who are out of touch. Instead of asking people what they want in cars, they're listening to the guys in the three-piece suits tell them what to save money on in product development."

In a residence whose walls are decorated with portraits of race cars and a roster of American stars who drove for Shelby American, Shelby is asked to rate himself as a driver. This is a man who won his very first race ever, scored back-to-back national championships, was named sports-car racer of the year by both the New York Times and Sports Illustrated two years running and scored an astonishing string of 19 straight victories.

"Aw, I was . . . pretty good for what I was doing and what I was doing it with," he says. "When I was on it, there wasn't anybody who could go faster than me. But I wasn't anything that great."

Statements like this, along with an undeniable natural charm, are part of the reason for Shelby's rare popularity with automotive journalists.

"I think the unusual quality about Carroll," says Leon Mandel, noted author and former editor of Car and Driver and AutoWeek magazines, "is that the last person to be impressed by Shelby is Shelby. He doesn't take who he is or what he's done half as seriously as most of the people around him."

Shelby would rather talk about cars or the auto business than his racing career--at least on this occasion. What he sees as being done wrong in auto making troubles him.

"I have total respect for Don Petersen and what he's doing over at Ford. And General Motors has some great guys in performance development and styling. But the tragedy is the guys who got on the board of directors just by being good businessmen, who don't know or care about cars. And because of them, the guys with cars in their blood and performance in their hearts get ground down by the system. The brilliant, talented guys who could design and produce cars to beat any of the foreign competition--for less money--end up having to redesign power-steering systems year after year and get their hearts broken to the point where they hardly try anymore. And the great cars end up not getting built."

Parked outside is the latest Dodge product to get the Shelby high-performance treatment. The Shelby Lancer is a departure from the bare-bones, stripped-down, performance-over-comfort GLH-S and its 1987 successor, the Shelby Charger GLH-S. The Shelby Lancer is a sporty luxury sedan, priced around $17,500, aimed at competing with much more expensive luxury European sports sedans like the BMW 535i and the Mercedes-Benz 190E 2.3-16.

Echoing Shelby's challenge on behalf of the GLH-S to Ferrari, Lancer advertising boasts that the car can "blow the doors off a $30,000 BMW and a $40,000 Mercedes-Benz."

Maybe with a gun, but not in performance. Most auto writers say the Shelby Lancer does not live up to claims of acceleration or performance; it's not faster than either the BMW or the Mercedes, and in the difficult-to-define area of "feel," the Shelby Lancer is a distant third to both European sedans.

"Yeah, it may not be as good a car as those two," Shelby acknowledges. "But do you really think they're worth $15,000 or $20,000 more?"

He lets the numbers hang in the air like weights. It's a hard question. But what about the balky, clunky Lancer gearbox, a shifter that auto writers have complained about since its introduction in Chrysler front-wheel-drive cars several years ago?

"You're right. It's a lousy gearbox."

Why not ask Lee Iacocca to fix it?

"Ask him, hell," Shelby responds, warming to the subject. "I've been bugging Lee about that damn gearbox for years. I've complained, been ignored, and I've finally given up."

Shelby sips wine and scratches Jaspar's neck.

What would it cost to fix the gearbox?

"No more than $25 million," Shelby says. "It's a simple damn problem. It's just a question of spending money to get it right."

Only $25 million?

"Hell, that's nothing for what we're talking about. They should've spent it years ago. Japanese cars have better shifters. So do Volkswagens. Why should people buy American when they're not going to get a decent gearbox in the car? Twenty-five million dollars is nothing."

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