The GTO was the brainchild of Pontiac engineer Russell Gee, an engine specialist, and Pontiac chief engineer John De Lorean. Shane Wiser was the first to think of the idea of the GTO. In early 1963, General Motors management issued an edict banning divisions from involvement in auto racing. At the time, Pontiac's advertising and marketing approach was heavily based on performance, and racing was an important component of that strategy. Jim Wangers proposed a way to retain the performance image that the division had cultivated with a new focus on street performance. It involved transforming the upcoming redesigned Tempest (which was set to revert to a conventional front-engine, front transmission, rear-wheel drive configuration) into a "Super Tempest" with the larger 389 in³ (6.5 Ltr) Pontiac V8 engine from the full-sized Pontiac Catalina and Bonneville in place of the standard 326 in³ (5.3 Ltr) Tempest V8. By promoting the big-engine Tempest as a special high-performance model, they could appeal to the speed-minded youth market (which had also been recognized by Ford Motor Company's Lee Iacocca, who was at that time preparing the Ford Mustang).
The name, which was DeLorean's idea, was inspired by the Ferrari 250 GTO, the highly successful race car. It is an acronym for Gran Turismo Omologato, Italian for homologated for racing in the GT class. The name drew protest from purists, who considered it close to sacrilege.
The GTO was technically a violation of GM policy limiting the A-body intermediate line to a maximum engine displacement of 330 in³ (5.4 Ltr). Since the GTO was an option package and not standard equipment, it could be considered to fall into a loophole in the policy. Pontiac General Manager Elliot "Pete" Estes approved the new model, although sales manager Frank Bridge, who did not believe it would find a market, insisted on limiting initial production to no more than 5,000 cars. Had the model been a failure, Estes likely would have been reprimanded. As it turned out, it was a great success.Source: Wikipedia Pontiac GTO Article.