He also discovers Herbie to have an incredible turn of speed for a car of his size and decides to take him racing.After watching Jim and Herbie win their first race together, Thorndyke, himself a major force on the local racing scene, offers to cancel the remaining payments Jim owes on Herbie if Jim can win a race that they will both be competing in at Riverside later that month.A heated argument between Jim and Thorndyke is settled when Carole persuades Thorndyke to drop the charges if Jim buys the car on a system of monthly payments.Jim soon finds the car is prone to going completely out of his control and believes Thorndyke has conned him.That evening, Carole comes to Jim's house to help Tennessee repair Herbie.Carole then hears the whole truth about Herbie having a mind of his own and had a great speed for winning races instead of Jim.
Jim lives in an old fire house overlooking San Francisco Bay with his friend and mechanic, Tennessee Steinmetz, a jolly Brooklynite who constantly extols the virtues of spiritual enlightenment, having spent time amongst Buddhist monks in Tibet, and builds "art" from car parts.
Tennessee, however, believes certain inanimate objects to have hearts and minds of their own and tries to befriend the car, naming it Herbie.
Jim's feelings about his new acquisition soon improve when it appears Herbie is intent on bringing him and Carole together.
Thorndyke (with his assistant Havershaw acting as co-driver) pulls every trick in the book to ensure he and his Thorndyke Special are leading at end of the first leg of the race.
As a result of Thorndyke's shenanigans, Jim (with Carole and Tennessee as co-drivers) limps home last with Herbie missing two wheels and having to use a wagon wheel to get to the finish line.