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In terms of look/plushness/etc, the carpet looks GREAT. It isnt faded at all, and when vacuumed, it looks brand new.
The problem is, it doesnt quite fit- it is like the carpet is just a little too big for the car (It is bulged up, here and there), and this makes it look TERRIBLE. Does anyone know 1) what causes this, 2) if the carpet can be shrunk back to normal??
Are you the original owner of the car? I'm wondering because you said you know the carpet is original. My first thought was that a prior owner installed a new carpet that didn't quite fit that well. A good portion of the carpet is stretched and glued. To make your carpet fit properly, it will entail lifting and stretching it out, cutting off the excess and then pulling it a little and then re-gluing it. But when you lift the carpet, it might be damaged in the process. So if you're not sure what to do, your best bet is to take it to an upholstery shop and get their opinion. They would probably show you what to do and if you do not think you could do it, they will get the work. That's why I think they will show you what needs to be done.
A good portion of the carpet is stretched and glued.
In my experience, the glued pieces are fairly easy to work with. Carefully remove them from the panel and reattach to the panel with 3M Super 90 spray adhesive(make sure you follow the directions).
The only pieces that are glued are the door panels, transmission tunnel, underdash panels and the sills. The driver and passenger floor wells, the rear wheel tubs, and the hatch floor are all molded and fit loosely in place and can be remolded carefully with a heatgun, or easily moved back into place if not too distorted.
For the tranny tunnel, you should try adjusting it in place, unless it is just falling off the plastic trim pieces. As for the rear, I would try adjusting that in place as well. Just try to get it to lay flat and make sure it's tucked in, in all the right places. It tucks under the lip of the body, if you remove the trim in the hatch, you should be able to figure out where it slips in there, and it kinda tucks under the hatch floor piece. I would try this first before trying to remold the carpet, as you could damage it beyond repair with the heatgun.
To remold, remove from the car and heat up the back of the carpet, but be careful you don't melt it. then quickly lay it back in place and tape it down before it cools, it should take a set when it cools. It's simple, but it's also easy to ruin the carpet with too much heat.