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In the early 1950s, Volkswagen was producing small, fuel efficient, reliable automobiles, in two words - Volkswagen Beetle. As the world recovered from World War II, consumers began to demand more stylish and elegant vehicles. Executives at Volkswagen decided to produce an "image" car for post-war buyers. The Karmann Ghia, VW's venture into the sports car market, was created in 1956. While it had limited power for a sports car, its stylish looks and reasonable price made sales strong.

Volkswagen contracted with German coach builder Karmann to build this car. Karmann in turn contracted the Italian firm Ghia for a sports car design. Ghia took an existing, but unused design (originally intended for Chrysler or Studebaker) and modified it to fit a slightly modified Beetle floorpan which had been widened some 12 inches. The body and nose of the Karmann Ghia were handcrafted and significantly more expensive to produce than the assembly line produced Beetle, which was reflected in the Karmann Ghia's higher price. Instead of fenders bolted and pre-welded together, as with the Beetle, body panels were butt-welded and hand-shaped and smoothed with English Pewter in a time-consuming and expensive process. At the time the Ghia was built, only the manufacturers of the finest cars took similar care.

The design and prototype were well received by Volkswagen executives, and in August 1955 the first Karmann Ghia was manufactured in Osnabrück, Germany. Public reaction to the curvy Karmann Ghia was excellent, and over 10,000 were sold in the first year, exceeding Volkswagen's expectations. Since all Karmann Ghias used the same Volkswagen air cooled engine as the Beetle, the car was not suitable as a true sports car, but the car's styling and "Beetle reliable" parts compensated for this shortfall. The Karmann Ghia also shared engine development with the Beetle as the Type 1 engine grew larger over time, finally arriving at an engine displacement of 1584 cc which produced about 60 horsepower.

In August 1957 a convertible (cabriolet) version was introduced. Although this version is often called the "1958 model" by some, the Detroit automakers' trend of calling models manufactured in August of a year as the next year's model wasn't adopted by Germany until at least 1965. In August 1964, the Vehicle Identification Number on VWs started showing the last digit of the year as the 3rd digit of the VIN. As with other automobiles, multiple changes were made to VW models during the model years, including early Ghias.

Notable exterior changes in 1961 included the car's new wider, finned front grilles, raised headlight relocation, and rear taillight lenses which became taller and more rounded. Cars made from 1955 to 1959 are referred to as "lowlights," due to the lower placement of the headlights.

In 1970 larger tail lights integrated the reverse lights and larger wrap-around turn signals in contrast to the earlier "bullet" style lights. VW models of this era have earned the slang nickname fat chicks. Larger and wider tailights in 1972 increased side visibility. 1973 modifications included larger energy-absorbing bumpers and the provision of a package shelf in lieu of the modest rear seat.

In late 1974, the car was discontinued and replaced by the Rabbit/Golf based Volkswagen Scirocco.

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karmann, ghia