This is a pretty long post but I feel it is informative and of a great benefit to those with early Mustangs that are tired transmission fluid stains on their driveway. Take from this what you will but it worked for me. If you feel unqualified to perform this repair / modification then print this off and hand it to your transmission shop along with the keys to your car. It shouldn’t be any more expensive than the cost to replace the gear selector shaft / throttle valve shaft seals without the modification.
Well, I have finally, after 9 months, reached a point in my restoration where I could install all the vital fluids, fire it up and check for leaks. I am trying to resurrect the existing engine and transmission without a complete overhaul. I replaced all the easy seals and gaskets during the process but ended up with two leaks anyway. One was a core plug in the back of the right cylinder head which I made short work of and the other was at the Gear Selector (GS) shaft / Throttle Valve (TV) shaft area. I did a little home work and found several forums (not all Mustangs) that discussed this leak on C4 transmissions. While I found no real answers to this common problem, it did help in the diagnosis of my car. This is the only C4 I have ever worked on other than fluid changes but I would guess they all have the same problem to one extent or another that mine did. I have included diagrams and photos for your viewing pleasure as well as a discussion of the mechanism.
FROM THE FORUMS:
This is what I took from the discussions and I would like to dispel a few myths. I am not saying the following solutions are wrong as long as they worked to the posters satisfaction. They just didn’t seem like reasonable solutions after my diagnosis of the problem.
“The TV shaft nut is found to be loose.” Mine was, and if yours is, and the shaft binds when you tighten the nut, you will need to perform the modification I have documented below.
“Add a washer under the nut to seal the o-ring.” This will not work because the o-ring bore has a depth of .129” and the o-ring is only .105” thick. The washer will contact the GS shaft before it compresses the o-ring. The o-ring is not designed to be compressed anyway. When properly installed, it is captured but not compressed.
Transmission is over full. That very well may be true. I checked my reproduction dip stick against the original and the tubes were equal length but the stick was about ¾” too short. So mine was no doubt over full but still this is not the true cause of this leak. When the engine is shut off, the fluid drains back out of the converter and the fluid level raises in the pan and likely above the level of the GS/TV shafts. I reconditioned my original dip stick for a more accurate fluid level check.
“It only leaks after I turn off the engine”. Again probably true for the reasons stated above. But I have spent considerable time on the underbody restoration of my car and I will not accept any leaks whatsoever.
Trans fluid burned on exhaust pipes is just nasty.
“You have to remove the valve body to replace the GS shaft seal.” Sad but true. However, it is no big deal. It has like 7 bolts and no springs or balls are going to jump out at you. If you can change the filter and fluid you can perform this modification. Getting the two shafts in and out is a little tricky in that one installs from the outside and one installs from the inside simultaneously. I did mine with the full exhaust and everything else still in the car so access is really not an issue.
“I put a pan under mine to catch the fluid when I shut it off”. PLEASE!
THE SOLUTION:
DISCLAIMER:
Perform this modification at your own risk! All information provided below was taken from my observations on my car. No other cars were studied and this problem may not be common across all C4 transmissions. (But I bet it is) Please consult your physician if you begin to feel faint, dizzy nauseous or drowsy while reading this thread.
I will cut directly to the chase on the solution and then explain later. THE GEAR SELECTOR SHAFT IS TOO LONG FOR THE THROTTLE VALVE SHAFT TO BE INSTALLED CORRECTLY. I don’t know if it was poorly engineered or if it was a quality control issue but it appears that a number of these (most) got out of the factory with mismatched or poorly machined parts. The solution is to simply grind away the threads on the GS shaft that extend past the 7/8” nut that holds it in the case. I actually had to grind part of the nut to get the proper clearance for the TV shaft. Study the attached diagram and you will see the unmodified shaft on top and the modified shaft on bottom. On the left side you will see the flaw in the o-ring bore that causes the leak. If the TV shaft does not extend far enough through the GS shaft the o-ring will try to seat on the “double D” of flat portions of the shaft creating a path for fluid to escape. On the right I have shown where the threads are too long on the top diagram and after removal on bottom diagram. This changes the orientation of the two shafts to each other. I assure you the engineers never intended for this mechanism to operate the way I have pictured it on top which is the way mine came apart. Please understand that I did not come to this conclusion lightly. One would think that internal transmission parts are machined properly from the factory but these are not. There just not. I very carefully studied the mechanism, and measured everything to be sure I wasn’t missing something and that this modification would have no ill effects on the operation of the transmission. I studied each component of the mechanism to determine its intended design, position, and operation. I would like to walk you through a discussion of my findings. You have already read my conclusions so if you would like you can stop here and just fix your leak but I would like to prove up my solution with a body of evidence.
PHOTOS 1,2,3
The first photo shows the external end of the TV shaft. The end is machined to a “Double D” shape to secure the external lever. The lever connects to the throttle linkage by an adjustable cable. The red arrow points to a raised portion of the shaft designed to provide interference fit so the lever actually wedges onto the shaft. The lever will index and freely slide down the treaded part of the shaft and half way down the smooth part of the shaft where it begins to wedge. The nut will push the lever the rest of the way down eliminating any free play in the lever regardless of the nut. The 2nd shot shows the orientation of the lever to the shaft the way it came out of my car. The external lever was not fully seated on the shaft and the nut was loose. The lever would still rotate the shaft due to the “double D” shape and it wouldn’t fall off the car because of the nut. At least not until the nut backed off. So away we go with the kick down working, transmission leak and all. The 3rd photo shows the lever fully and properly seated onto the shaft the way it was intended to be installed once in the car. I know, the lever is backwards but it still demonstrates my point. The point is that the engineer intended for this lever to swedge and fully seat onto the shaft and the retaining nut to be torqued down. Not left loose so the shaft could still rotate in the bore. And the loose nut has nothing to do with the leak by the way.
PHOTOS 4,5,6
The 4th photo shows the distance between the properly installed external lever and the fixed internal lever on the TV shaft. The distance is 3.035”. Because the internal lever is welded to the shaft, and the other end is machined to accept the external lever, there is no way to alter this part. It can’t be made longer so any changes must come from the GS shaft through which the TV shaft rotates. The 5th photo shows the length of the GS shaft and it measures 3.156”. This shaft needs to be shortened at least .121” to allow the TV shaft external lever to fully seat without binding on the GS shaft. This is why you may have found the nut loose on your TV lever. If tightened, the shaft will bind and not rotate. The 6th shot shows the unmodified GS shaft and the orientation of the TV shaft at the o-ring bore. You can see that no part of the round TV shaft is protruding into the o-ring bore. Only the “Double D” is showing and that is what causes the leak. The o-ring can still seat against the GS shaft bore like this but will not seat on the flat sides of the TV shaft and this is the root cause of this troublesome leak.
PHOTOS 7,8
These just show the o-ring bore which is .129” deep and the 8th shows the o-ring at .105” thick. This proves that a big flat washer is not the answer. Even if you tried to double stack two o-rings and a flat washer it would still leak through the threads of the shaft.
PHOTOS 9,10,11
After realizing what needed to be done to fix the leak, I wanted to be sure the internal TV lever would still contact the TV valve plunger in the valve body. The 9th photo shows the GS/TV assembly as it is oriented in the valve body. The lower lever is the gear selector lever and modifying the shaft will not change this levers orientation to the valve body. The gear selector lever is captured by (under) the large 7/8” nut and is indexed to the shaft by another “Double D” machining operation on the GS shaft. Only the TV lever will change positions. So the question that remains is what effects will this have. The 10th shot shows the wear pattern on the throttle valve plunger in the valve body and the wear is to the inboard side of the valve (red arrow). The 11th shot is of the TV shaft internal lever (fuzzy I know) and the wear pattern is to the outboard side of the lever. Not that it really matters but this lever has been riding on the valve off center to the inboard side since it was new. This told me I can easily move the lever outboard and still contact the valve properly. I know it sounds scary to go grinding on an internal transmission part. But understand that the .121” the lever needs to move outboard to make the external o-ring seat properly is only just shy of 1/8”. If it makes you feel better you can bend the lever slightly to center up the contact point on the plunger but it probably won’t need it. Mine didn’t. Understand that this lever only moves just slightly and only when you push the gas pedal all the way to the floor to hit passing gear. The rest of the time it sits idle waiting for its moment in the sun.
PHOTOS 12,13,14,15
The 12th photo shows the modified GS shaft after grinding. I used a simple die grinder on it for an overall length of 3.028”. This gave me around .007” clearance for the TV shaft to freely rotate inside of it with the external lever torqued to specs while still capturing the o-ring inside the bore. The 13th shot shows the new orientation of the TV shaft to the GS shaft at the o-ring bore. You can see that the round part of the shaft is now visible. The 14th shot shows the assembly with the o-ring installed and the o-ring is now in full contact with the bore and the shaft keeping all the fluid inside the transmission where it belongs. The 15th shot is of the whole mechanism ready to go back in the car but with the diagram that makes it the 16th shot so I couldn't upload it.
Oh, one more thing. I saw no evidence that the Gear Selector Shaft seal had leaked although I replaced it while I was there. The new seal is a nice rubber coated seal that went in very smoothly from the outside of the case. Polish all of the areas of the shafts where the seals ride with 400 grit sandpaper, clean and lube with white grease before installation. Your leak should now be fixed.
I hope this may help someone.
Steve
C4 Trans Gear Selector Shaft/Throttle Valve Shaft Leak SOLUTION! 
