Thanks to Ed for writing this article.
This article is a guide to installing a Borg-Warner T-5 manual transmission for the 5.0L V8 engine *. This conversion uses Mustang parts commonly found in the salvage yard, swap meets or auction websites.
* NOTE: Since the 5.0L V8 and 3.8L V6 share the same Ford small block bolt pattern, some of this information may be the same for V6 models as well; however, there are many more issues involved with installing a T-5 onto a 3.8L V6 engine in our cars. At this writing it is not recommended to use a T-5 on the V6 until much more research is made.
UPDATE: LMR has a great article and installation video for Mustangs that is almost dead on with the info below. They also have an extensive, in-depth parts list for this swap. Feel free to view it first so you'll get a great idea. The video has a transcript in case you don't wish to view it.
The most important part of the parts acquisition is to choose a transmission. For most people who plan to drive their car on the street, the obvious choice would be the 1987-93 Mustang V8 T-5 transmission. It's cheap, plentiful, and has average durability. We bet you didn't know that there are over 30 flavors of T-5 transmissions! They all have different maximum torque ratings, and gear ratios. For technical information on the differences in T-5's, check out the spec chart here.
Of course, there are other options for transmissions. There are many aftermarket units available which have been improved or are designed to take the stress of "extreme" applications. You will have to seek these out, but they range from a T-56 (with six speeds), to a Tremec 3550 rated at 400+ foot lbs. of torque! There are also places that have assembled 5-speed conversion kits, complete with transmission and everything you need to do the job. Some parts are used though, so be sure to ask questions.
Whatever you do, don't install a used clutch unless you have WAY TOO much time on your hands. A worn clutch that worked in another car may not work in yours, even with the same transmission! Ask around, usually the different brands and types of clutches have a very different pedal feel and ability to stand up to abuse!
The rest of the parts you will need: (items bulleted with a star instead of a circle, are optional)
On a column shift car you will have to remove the column shift handle (simple pin removal) and all linkages. You should try to replace the steering column's top cover with one from a donor floor shift car, to make it look nice. Additionally, there is a second shaft that runs alongside the main steering shaft, for the shift control arm. That's what physically moves the linkage on a column shift car. It's optional to fully remove that shaft but it does look nicer without it. It's probably easiest to remove it from the engine bay side, instead of from the inside of the car. Unfortunately, if you have the optional automatic parking brake release (vacuum system), you might lose that since it's attached to that shifter shaft. There may be a way to bolt that to the firewall though.
This is probably the most time-consuming part of the job. Expect to spend a full day on this part alone, your first time out. To make this as easy as possible, you will want to remove the driver's seat and the entire steering column. Removal of the steering column sounds like a chore, but it's not really that bad. Before you do anything else, get your trouble light out, and DISCONNECT THE BATTERY. This will prevent blown fuses, fires, and electrocution!
Next, remove the steering column covers, and all panels surrounding it. Unhook all of the harnesses you can get to on the steering column, including the multifunction turn signal/wiper switch, ignition switch, key chime wire, and so on. There are 4 main nuts that hold the column in, underneath the dash. Take those out, and the column should drop freely from the dash. There is one bolt in the engine compartment, accessible from underneath, where the steering shaft bolts together (it's within about 4 inches of the firewall). Remove that bolt, and you should be able to take the whole column out of the car from the inside. Set the column outside the car so it's not in your way.
At this point you should be able to lay under the dash fairly easily, and see everything that's in your way. The worst part is managing to get those diagonal dash braces out of the way. Some people end up bending them out of the way, but you may want to remove them.
The 4 nuts on the firewall that hold the pedals in are fairly easy to remove with power tools, but they take a lot more time to reinstall. The upper right nut takes quite a long time to reinstall. Tear everything out of there that you need to, and once you get the pedals loose, you'll have to maneuver and rotate them around for awhile before you get them totally free.
Reverse this procedure for install of the new pedals. If you're doing this whole job all at once, you will want to hook up the clutch cable with the column out, after you get the transmission in. If you're not, make sure you leave the under-dash covers out so that you can get in there to hook up the cable. Note: if you've read articles on the Mustang T-5 conversion, you should know that you do not have to worry about rerouting a speedo cable, unless you have an 1983-84 Cougar/T-Bird.
Get the car all the way up on some jacks tands or wheel ramps or both. As high as you can get it (but not higher than you can reach).
Remove the H-Pipe (or Y, for you deprived folks). Remove the muffler and tailpipe IF NECESSARY (have you done a dual exhaust conversion? If not, now would be a good time!).
MARK YOUR DRIVESHAFT AT THE REAR. Put a line on the shaft, and on the pinion, BEFORE YOU TAKE IT OUT. Your driveshaft is supposed to be "balanced", but it can make a major difference to your ride quality if you don't do this. Then remove the driveshaft.
Remove the AOD transmission, AOD flexplate, tranny cooler lines, shifter, shift cables, and TV/kickdown cable (you can sell it all on eBay!). Plug the holes from the cooler lines in the radiator.
Install your rear main seal, if desired. Shoot some WD-40 into the end of the crank, making sure the hole is clean, for the installation of the pilot bearing. Install the pilot bearing using a socket that's slightly smaller than the pilot bearing, and knock it in (don't break it though!). Install the new flywheel, using blue thread locker on the attaching bolts. Install the clutch disk and pressure plate. Install the throwout bearing and then the bellhousing. Make sure that the fork is installed correctly—it should poke straight out of the side of the bellhousing, pointed slightly towards the rear of the vehicle. Make sure that the fork is correctly interfacing with the throwout bearing and the bearing is flat against the pressure plate. It will be very tight, and you will be able to move it very little with your hands (maybe 1/2", with moderate effort).
Now install the T-5 transmission. Make sure that everything is lined up inside, with the shifter and all, before you proceed! It seems to be easier to install without the shifter handle. Install the crossmember and exhaust hanger. Wire up the reverse light/neutral safety harness. Hookup the clutch cable. It should be installed on the FARTHEST "tang" on the quadrant. The shift fork will be about an inch from the back of the bellhousing when everything is installed correctly. Reinstall the driveshaft and exhaust.
Install your shifter handle and "test drive" it, on the jack stands. (MAKE SURE THE VEHICLE IS STABLE) When the clutch is pressed in, and the vehicle is running and in first gear, the wheels shouldn't spin at all. The wheels should begin to turn when you've released an inch or two. If that test goes okay, you can drop it, and take it around the block. If your clutch is new, keep the burnouts to a minimum for the first 50 miles or so. Listen closely for slippage. When the car is in gear, the motor should not "spin" up, without a correlation in acceleration. If you have slippage, the clutch cable could be adjusted improperly, or you could have a bad clutch. If not, finish bolting in your interior trim, and most of all...
ENJOY YOUR NEW 5 SPEED!