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For the 1994 model year, the Ford Mustang underwent its first major redesign in fifteen years. The design, code named "SN-95" by Ford, was based on an updated version of the Fox platform. It featured styling by Bud Magaldi that incorporated some stylistic elements from the classic Mustangs. A convertible returned, but the notchback and hatchback body styles used in earlier Mustangs were not available.

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Prior to the redesigned Mustang's launch, a two-seater show car was designed by Darrell Behmer and Bud Magali. Called the Mustang Mach III, it was shown at the 1993 North American International Auto Show in Detroit and hinted at what the new production Mustang would look like. The Mach III featured a supercharged 4.6 L DOHC V8 with 450 hp (336 kW; 456 PS). While this engine was not put into production, it hinted to the future use of Ford's Modular V8 in the Mustang, including the eventual use of a supercharged 4.6 L V8. A redesigned SN-95 Mustang came on December 26, 1998 for the 1999 model year. Characterizing the redesign was Ford's New Edge design language, which featured sharper contours, larger wheel arches, and creases in the bodywork, replacing many of the soft lines of the previous model. The Mustang also received new wheels and hubcaps. However, the car carried over the same roof line and interior, in addition to the same basic platform. All 1999 Mustangs (except the Cobra) received "35th-Anniversary" badges on the front fenders. A "35th Anniversary Limited Edition" appearance option package came on 2,318 GT coupes and 2,310 GT convertibles. Available only in black, silver metallic, white, and red, they featured a body-colored hood scoop, rear spoiler, side scoops and rocker panels, a blacked-out panel between the taillamps, and 17 by 8-inch (200 mm) five-spoke aluminum wheels; while the Interiors included black leather and vinyl seats with silver inserts and pony logo, aluminum shift knob, a unique instrument cluster with 35th anniversary script, silver and black floor mats with 35th anniversary logo, and silver door trim inserts.

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The 3.8 L OHV Essex V6 returned as the base engine for 1999. A new split-port induction system replaced single-port induction, which increased the base model's output to 190 hp (142 kW; 193 PS) @ 5250 rpm and 220 lb·ft (298 N·m) of torque @ 2750 rpm.[18] In 2001, Ford added Intake Manifold Runner Control (IMRC) which further increased the engine's output to 193 hp (144 kW; 196 PS) at 5500 rpm and 225 lb·ft (305 N·m) of torque @ 2800 rpm. During the second half of the 2004 model year, the 3.8 L Essex was replaced with the 3.9 L OHV Essex V6. The 3.9 L had a slightly longer stroke but output for the engine remained identical to the outgoing 3.8 L. The 3.9 L Essex only served in the Mustang for 1/2 a year before being replaced by the 4.0 L Cologne V6 in 2005. The GT model continued to use the 4.6 L V8 as before, but now with 260 hp (194 kW; 264 PS)5250 rpm and 302 lb·ft (409 N·m) of torque @ 4000 rpm. They featured new "Performance Improvement" (PI) heads, cams, and intake manifold; thus becoming a modification for previous NPI "Non Performance Improvement" 4.6 L cars. Mustangs now featured a returnless type fuel system utilizing a PCM-guided fuel rail pressure sensor to regulate pressure. The Mustang GT was now capable of low 14 second 1/4 mile ETs with 96+ mph trap speeds compared to the 1998 GT's upper-14 second ETs and 91-93 mph trap speeds.

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For 1999, the Mustang also received a change to its taillights, making them edgier, with sharp corners and straight lines as opposed to the rounded off style of previous years. The lamps were still composed of three vertical segments, reminiscent of the original. A six CD player head unit was made available.