<PAGE>   1
   
                                                                     Exhibit 3.1
    

                           CERTIFICATE OF DESIGNATION


      The undersigned, being the President and Chief Executive Officer of Cragar
Industries, Inc., a Delaware corporation (the "Company"), does hereby file this
Certificate of Designation pursuant to Section 151(g) of the Delaware General
Corporation Law.

                      SERIES A CONVERTIBLE PREFERRED STOCK

   
                  Section 1. Designation, Amount, Par Value and Rank. A series
            of preferred stock shall be designated as Series A Convertible
            Preferred Stock (the "Series A Preferred Stock"), and the number of
            shares so designated shall be 30,000. Each share of Series A
            Preferred Stock shall have a par value of $.01. Each share of Series
            A Preferred Stock shall have a stated value of $100 per share (the
            "Series A Stated Value"). The Series A Preferred Stock shall rank
            prior to all classes or series of equity securities (including the
            Common Stock). The Series A Preferred Stock is subject to and
            limited by the Purchase Agreement (as defined in Section 6 below)
            and the terms contained herein.
    
   
    
   
                  Section 2. Dividends. The holders of shares of Series A
            Preferred Stock (the "Series A Holders") shall be entitled to
            receive, and the Company shall pay, cumulative dividends at a rate
            per share (as a percentage of the Series A Stated Value per share)
            equal to 7.0% per annum payable (in arrears) at the Company's option
            in either (i) cash or (ii) shares of Series A Preferred Stock, the
            number of which shall be determined by dividing the aggregate cash
            value of such dividends payable (other than such dividends
            previously paid) by the Series A Stated Value on the day immediately
            prior to the Series A Holder Conversion Date (as defined in Section
            5(a) hereunder). Dividends on the Series A Preferred Stock shall
            accrue monthly commencing on the Series A Original Issue Date (as
            defined in Section 6 below) and shall be deemed to accrue whether or
            not earned or declared and whether or not there are profits, surplus
            or other funds of the Company legally available for the payment of
            dividends. The party that holds the Series A Preferred Stock on an
            applicable record date for any dividend payment will be entitled to
            receive such dividend payment and any other accrued and unpaid
            dividends which accrued prior to such dividend payment date, without
            regard to any sale or disposition of such Series A Preferred Stock
            subsequent to the applicable record date but prior to the applicable
            dividend payment date. Dividends on the Series A Preferred Stock
            payable in cash shall be paid on the 16th day of the sixth month
            anniversary and twelfth month anniversary of the Series A Original
            Issue Date. Dividends on the Series A Preferred Stock payable in
            additional shares of Series A Preferred Stock shall be issued in the
            form of Common Stock upon conversion of the Series A Preferred Stock
            pursuant to Section 5. Series A Preferred Stock which is accrued as
            a dividend but is unissued shall accrue dividends under this
            Section.
    

                  Section 3. Voting Rights. Except as otherwise provided herein
            and as otherwise provided by law, the Series A Preferred Stock shall
            have no voting rights. However, so long as any shares of Series A
            Preferred Stock are outstanding, the Company shall not, without the
            affirmative vote of the holders of a majority of the
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            shares of the Series A Preferred Stock then outstanding, (i) alter
            or change adversely the powers, preferences or rights given to the
            Series A Preferred Stock or (ii) authorize, create, issue or
            increase any class of stock ranking as to dividends or distribution
            of assets upon a Series A Liquidation (as defined in Section 4
            below) senior to or pari passu with the Series A Preferred Stock.

                  Section 4. Liquidation. Upon any liquidation, dissolution or
            winding-up of the Company, whether voluntary or involuntary (a
            "Series A Liquidation"), the Series A Holders shall be entitled to
            receive out of the assets of the Company, whether such assets are
            capital or surplus, for each share of Series A Preferred Stock, an
            amount equal to the Series A Stated Value, plus an amount equal to
            accrued but unpaid dividends per share, whether declared or not, but
            without interest, before any distribution or payment shall be made
            to the holders of any Series A Junior Securities (as defined in
            Section 6 below), and if the assets of the Company shall be
            insufficient to pay in full such amounts, then the entire remaining
            assets to be distributed after distribution of payment to senior
            securities shall be distributed among the Series A Holders and the
            holders of any class of the Company's equity securities ranking on a
            parity with the Series A Preferred Stock as to liquidation,
            dissolution and winding-up ratably in accordance with the respective
            amounts that would be payable on such shares if all amounts payable
            thereon were paid in full. A sale, conveyance or disposition of all
            or substantially all of the assets of the Company shall be deemed a
            Series A Liquidation; provided that a consolidation or merger of the
            Company with or into any other company or companies shall not be
            treated as a Series A Liquidation, but instead shall be subject to
            the provisions of Section 5 below. The Company shall mail written
            notice of any such liquidation, not less than 60 days prior to the
            payment date stated therein, to each record Series A Holder as shown
            on the record books of the Company.

                  Section 5. Conversion.

                  (a) Subject to the provisions of Section 5(c)(ii) and
            5(c)(iii) and the last paragraph of this Section 5(a), each share of
            Series A Preferred Stock shall be convertible into validly issued,
            fully paid and nonassessable shares of Common Stock free and clear
            of all liens and charges and not subject to any preemptive rights at
            the Series A Conversion Ratio (as defined in Section 6 below) at the
            option of the Series A Holder in whole or in part at any time after
            the Series A Original Issue Date (the "Series A Conversion Date").
            Any conversion herewith shall be of a minimum number of at least
            1,000 shares of Series A Preferred Stock, except in the event there
            are less than 1,000 shares of Series A Preferred Stock remaining,
            then, in that case, all such remaining shares may be converted. The
            Series A Holder shall effect conversions by surrendering to the
            Company the form of conversion notice attached as Exhibit C to the
            Purchase Agreement (the "Series A Holder Conversion Notice") in the
            manner set forth in Section 5(i) below and simultaneously therewith
            or as soon as practicable thereafter the certificate or certificates
            representing the shares of Series A Preferred Stock to be converted.
            Each Series A Holder Conversion Notice shall specify the number of
            shares of Series A Preferred Stock to be converted and the date on
            which such conversion is to be effected, which date may not be prior
            to the date the Series A Holder delivers such notice by facsimile
            (the "Series A Holder Conversion Date"). Each Series A Holder
            Conversion Notice, once given, shall be irrevocable except as
            provided in Section 5(b) below. If the Series A Holder is converting
            less than all shares of Series A Preferred Stock represented by the
            certificate or certificates tendered by the Series A Holder with the
            Series A Holder


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            Conversion Notice, the Company shall promptly deliver to such Holder
            a certificate for such number of shares as have not been converted.

                  Notwithstanding anything to the contrary contained herein, no
            shares of Series A Preferred Stock may be converted prior to the
            date which is 120 days following the Series A Original Issue Date.
            On the expiration of three years after the Series A Original Issue
            Date, each share of Series A Preferred Stock shall be mandatorily
            converted into shares of Common Stock at the Series A Conversion
            Ratio.

                  (b) Not later than three Trading Days (as defined in Section 6
            below) after the Series A Holder Conversion Date (the third day of
            which shall hereinafter be referred to as the "Last Series A
            Conversion Trading Day"), the Company will deliver to the Series A
            Holder (i) a certificate or certificates which shall be free of
            restrictive legends and trading restrictions, representing the
            number of shares of Common Stock being acquired upon the conversion
            of shares of Series A Preferred Stock and (ii) one or more
            certificates representing the number of shares of Series A Preferred
            Stock not converted; provided, however, that the Company shall not
            be obligated to issue certificates evidencing the shares of Common
            Stock issuable upon conversion of any shares of Series A Preferred
            Stock until certificates evidencing such shares of Series A
            Preferred Stock are either delivered for conversion to the Company
            or any transfer agent for the Series A Preferred Stock or Common
            Stock (the "Transfer Agent"), or the Series A Holder notifies the
            Company that such certificates have been lost, stolen or destroyed
            and provides a bond (or other adequate security reasonably
            acceptable to the Company) satisfactory to the Company to indemnify
            the Company from any loss incurred by it in connection therewith
            (collectively, the "Lost Certificate Notification and Bond"). The
            Company shall, upon request of the Series A Holder, use its best
            efforts to deliver any certificate or certificates required to be
            delivered by the Company under this Section 5(b) electronically
            through the Depository Trust Corporation or another established
            clearing corporation performing similar functions. In the event that
            the certificate(s) representing the number of shares of Common Stock
            issuable upon conversion of any shares of Series A Preferred Stock
            is not delivered to the Series A Holder on the later to occur of the
            Last Series A Conversion Trading Day, or the day on which the
            Company or any Transfer Agent receives the certificates evidencing
            the shares of Series A Preferred Stock to be converted or the Series
            A Holder provides the Company with the Lost Certificate Notification
            and Bond, then the Series A Holder shall be entitled by written
            notice to the Company at any time on or before such Holder's receipt
            of such certificate or certificates thereafter, to rescind such
            conversion, in which event the Company shall immediately return the
            certificates representing the shares of Series A Preferred Stock
            tendered for conversion. The Series A Holders shall not trade any
            Common Stock evidenced by any certificate to be received upon a
            conversion until receipt of such certificate.

                  (c) (i) The conversion price ("Series A Conversion Price") for
            each share of Series A Preferred Stock in effect on any Series A
            Holder Conversion Date shall be the lesser of X (the "Series A Fixed
            Price") or (subject to the last sentence of this Section 5 (c)(i)) Y
            (the "Series A Floating Price"): where X is equal to the greater of
            115% of the Per Share Market Value (as defined in Section 6 below)
            on the Series A Original Issue Date or $6.75 and Y is equal to 97%
            of the average Per Share Market Value during the ten (10) Trading
            Days immediately preceding the Series A Holder Conversion Date (the
            "Series A Valuation Period"); provided, however, that (i) for each
            30 day period subsequent to the Series A Original Issue


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            Date, Y shall be reduced by an additional 1.5% of the Per Share
            Market Value during the Series A Valuation Period, (ii) in no event
            shall Y be reduced below 80% of the average Per Share Market Value
            and (iii) in the event any Series A Holder or any Affiliate (as
            defined in Section 6 below) of such Series A Holder has directly or
            indirectly taken a "short position" or engaged in any substantially
            similar transaction with respect to the Common Stock at any time
            during the period commencing on the Series A Original Issue Date
            through the Series A Holder Conversion Date, the Series A Conversion
            Price for the Series A Preferred Stock held by such Series A Holder
            shall be the greater of Series A Fixed Price and the Series A
            Floating Price. If the registration statement to be filed by the
            Company is not declared effective by the Commission for any reason
            within 120 days after the Series A Original Issue Date (the date on
            which the 120-day period expires being hereinafter referred to as
            the "Series A Filing Date"), then for each month after such Series A
            Filing Date that such registration statement shall not have been so
            declared effective, the Series A Floating Price, as computed above,
            shall be decreased by an additional 1%, provided, however in no
            event shall the aggregate discount to the Series A Floating Price
            under (i) of the prior sentence and this sentence exceed 20%. Any
            decrease in Series A Floating Price shall not be subject to
            elimination or alteration by any subsequent delay in the declaration
            of effectiveness of a registration statement. Notwithstanding
            anything contained herein to the contrary, the Series A Preferred
            Stock may only be converted under this Section 5(c)(i) at the Series
            A Fixed Price during the period of time beginning on the date 120
            days following the Series A Original Issue Date and ending on the
            date 180 days following the Series A Original Issue Date.

                        (ii) The Series A Preferred Stock shall be redeemable,
            in whole or in part, and superseding any prior Series A Holder
            Conversion Notice ("Series A Company Redemption") at any time upon
            the payment to the Series A Holder of all of A) a cash payment equal
            to the Per Share Market Value on the date of the Series A Company
            Redemption (the "Series A Company Redemption Date"), multiplied by
            the number of shares of Common Stock that would be provided if such
            date were a Series A Holder Conversion Date at the Series A
            Conversion Price, B) a cash payment equal to all accrued dividends
            payable with respect to such Series A Preferred Stock and C) a
            number of warrants to purchase Common Stock with an exercise price
            equal to the Series A Fixed Price determined by dividing the
            aggregate Series A Stated Value of the Preferred Stock redeemed by
            the Series A Fixed Price, with a term expiring three (3) years from
            the Series A Company Redemption Date, in the form of warrant
            attached as Exhibit D to the Purchase Agreement. The Company shall
            effect such redemption by delivering to the Series A Holders of such
            shares of Series A Preferred Stock to be redeemed a written notice
            in the form attached as Exhibit E to the Purchase Agreement (the
            "Series A Company Redemption Notice"). In the event that the Company
            receives a Series A Holder Conversion Notice, then it may effect a
            Series A Company Redemption thereafter only if it provides a Series
            A Company Redemption Notice no later than two (2) Trading Days after
            the Company has actually received such Series A Holder Conversion
            Notice. Each Series A Company Redemption Notice shall specify the
            number of shares of Series A Preferred Stock to be redeemed and the
            date on which redemption is to be effected. Upon the receipt of the
            Series A Company Redemption Notice, the Series A Holders shall, as
            promptly as practicable, surrender the


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            certificates representing the shares of Series A Preferred Stock
            which have been redeemed at the office of the Company or of any
            Transfer Agent. The failure of a Series A Holder to deliver such
            certificates shall have no impact on the effectiveness of the
            redemption. The Company shall make payment to any Series A Holder
            for all of its shares of Series A Preferred Stock redeemed by the
            Company hereby within thirty (30) days from delivery of the Series A
            Company Redemption Notice. If the Company is redeeming less than all
            shares of the Series A Preferred Stock, the Company shall, upon
            redemption of such shares subject to such Series A Company
            Redemption and receipt of the certificate or certificates
            representing such shares of Series A Preferred Stock, deliver to the
            Series A Holders a certificate for such number of shares of Series A
            Preferred Stock as have not been redeemed.

                        (iii) In case of any reclassification of the Common
            Stock, any consolidation or merger of the Company with or into
            another Person, the sale or transfer of all or substantially all of
            the assets of the Company or any compulsory share exchange pursuant
            to which the Common Stock is converted into other securities, cash
            or property, the holders of the Series A Preferred Stock then
            outstanding shall have the right thereafter to convert such shares
            only into the shares of stock and other securities and property
            receivable upon or deemed to be held by the holders of Common Stock
            following such reclassification, consolidation, merger, sale,
            transfer or share exchange, and the Series A Holders shall be
            entitled upon such event to receive such amount of securities or
            property as the holders of the Common Stock of the Company into
            which such shares of Series A Preferred Stock could have been
            converted immediately prior to such reclassification, consolidation,
            merger, sale, transfer or share exchange would have been entitled.
            The terms of any such consolidation, merger, sale, transfer or share
            exchange shall include such terms so as to continue to give to the
            Series A Holder the right to receive the securities or property set
            forth in this Section 5(c)(iv) upon any conversion following such
            consolidation, merger, sale, transfer or share exchange. This
            provision shall similarly apply to successive reclassifications,
            consolidations, mergers, sales, transfers or share exchanges.

                        (iv) If:

                              a. the Company shall declare a dividend (or any
                        other distribution) on its Common Stock; or

                              b. the Company shall declare a special
                        nonrecurring cash dividend on or a redemption of its
                        Common Stock; or

                              c. the Company shall authorize the granting to all
                        holders of the Common Stock rights or warrants to
                        subscribe for or purchase any shares of capital stock of
                        any class or of any rights; or

                              d. the approval of any stockholders of the Company
                        shall be required in connection with any
                        reclassification of the Common Stock of the Company
                        (other than a subdivision or combination of the
                        outstanding shares of Common Stock), any consolidation
                        or merger to which the Company is a party, any sale or
                        transfer of all or substantially all of the assets of
                        the Company, or any compulsory share exchange whereby
                        the Common Stock is converted into other securities,
                        cash or property; or


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                              e. the Company shall authorize the voluntary or
                        involuntary dissolution, liquidation or winding-up of
                        the affairs of the Company;

            then the Company shall cause to be filed at each office or agency
            maintained for the purpose of converting the Series A Preferred
            Stock, and shall cause to be mailed to the Series A Holders at their
            last addresses as shall appear upon the stock books of the Company,
            at least 10 calendar days prior to the applicable record or
            effective date hereinafter specified, a notice stating (x) the date
            on which a record is to be taken for the purposes of declaring such
            dividend, distribution, redemption, rights or warrants, or if a
            record is not to be taken, the date as of which the holders of
            Common Stock of record to be entitled to such dividend,
            distribution, redemption, rights or warrants are to be determined,
            or (y) the date on which such reclassification, consolidation,
            merger, sale, transfer, share exchange, dissolution, liquidation or
            winding-up is expected to become effective, and the date as of which
            it is expected that the holders of Common Stock of record shall be
            entitled to exchange their shares of Common Stock for securities or
            other property deliverable upon such reclassification,
            consolidation, merger, sale, transfer, share exchange, dissolution,
            liquidation or winding-up; provided, however, that the failure to
            mail such notice or any defect therein or in the mailing thereof
            shall not affect the validity of the corporate action required to be
            specified in such notice.

                        (v) All calculations under this Section 5 shall be made
            to the nearest cent or the nearest 1/100th of a share, as the case
            may be.

                        (vi) In no event shall the holders of the Preferred
            Stock be permitted to convert any of the shares of Series A
            Preferred Stock held by them (other than as a result of a mandatory
            conversion thereof) if, as a result of such conversion, the holders
            of the Series A Preferred Stock would hold, in the aggregate greater
            than 20% of the Company's issued and outstanding Common Stock.

                  (d) If at any time conditions shall arise by reason of action
            taken by the Company which in the opinion of the Board of Directors
            are not adequately covered by the other provisions hereof and which
            might materially and adversely affect the rights of the Series A
            Holders (different than or distinguished from the effect generally
            on rights of holders of any class of the Company's capital stock) or
            if at any time any such conditions are expected to arise by reason
            of any action contemplated by the Company, the Company shall mail a
            written notice briefly describing the action contemplated and the
            material adverse effects of such action on the rights of the Series
            A Holders at least 10 calendar days prior to the effective date of
            such action, and an appraiser (the "Appraiser") selected by the
            holders of majority in interest of the Series A Preferred Stock
            shall give its opinion as to the adjustment, if any (not
            inconsistent with the standards established in this Section 5), of
            the Series A Conversion Price (including, if necessary, any
            adjustment as to the securities into which shares of Series A
            Preferred Stock may thereafter be convertible) and any distribution
            which is or would be required to be made without diluting the rights
            of the Series A Holders; provided, however, that the Company after
            receipt of the determination by such Appraiser, shall have the right
            to select an additional Appraiser, in which case the adjustment
            shall be equal to the average of the adjustments recommended by each
            such Appraiser. The Board of Directors shall make the adjustment
            recommended forthwith upon the receipt of such opinion or


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            opinions or taking of any such action contemplated, as the case may
            be; provided, however, that no such adjustment of the Series A
            Conversion Price shall be made which in the opinion of the
            Appraiser(s) giving the aforesaid opinion or opinions would result
            in an increase of the Series A Conversion Price to more than the
            Series A Conversion Price then in effect. The Board of Directors
            shall act in a reasonable manner and make any reasonable adjustment
            recommended forthwith.

                  (e) The Company will at all times reserve and keep available
            out of its authorized and unissued Common Stock and Series A
            Preferred Stock solely for the purpose of issuance upon conversion
            of Series A Preferred Stock and for issuance of dividends on the
            Series A Preferred Stock as herein provided, free from preemptive
            rights or any other actual contingent purchase rights of Persons
            other than the Series A Holders, such number of shares of Common
            Stock as shall be issuable (taking into account the adjustments and
            restrictions of Section 5(c) hereof) upon the conversion of all
            outstanding shares of Series A Preferred Stock and such number of
            shares of Series A Preferred Stock as shall be accrued (taking into
            account the adjustments and restrictions of Section 5(c) hereof) as
            dividends on the Series A Preferred Stock. The Company covenants
            that all shares of Common Stock and Series A Preferred Stock that
            shall be so issuable shall, upon issue, be duly and validly
            authorized, issued and fully paid and nonassessable.

                  (f) Upon a conversion or redemption of any shares of Series A
            Preferred Stock hereunder the Company shall not be required to issue
            stock certificates representing fractions of shares of Common Stock,
            but may if otherwise permitted, make a cash payment in respect of
            any final fraction of a share based on the Per Share Market Value at
            such time. If the Company elects not, or is unable, to make such a
            cash payment, the holder of a share of Series A Preferred Stock
            shall be entitled to receive, in lieu of the final fraction of a
            share, one whole share of Common Stock.

                  (g) The issuance of certificates for shares of Common Stock on
            conversion of Series A Preferred Stock shall be made without charge
            to the holders thereof for any documentary stamp or similar taxes
            that may be payable in respect of the issue or delivery of such
            certificate, provided that the Company shall not be required to pay
            any tax that may be payable in respect of any transfer involved in
            the issuance and delivery of any such certificate upon conversion in
            a name other than that of the holder of such shares of Series A
            Preferred Stock so converted and the Company shall not be required
            to issue or deliver such certificates unless or until the Person(s)
            requesting the issuance thereof shall have paid to the Company the
            amount of such tax or shall have established to the satisfaction of
            the Company that such tax has been paid.

                  (h) Shares of Series A Preferred Stock converted into Common
            Stock shall thereafter be canceled and shall have the status of
            authorized but unissued shares of Series A Preferred Stock.

                  (i) Each Series A Holder Conversion Notice shall be given by
            facsimile and by mail, postage prepaid, addressed to the attention
            of the Chief Financial Officer of the Company at the facsimile
            telephone number and address of the principal place of business of
            the Company. Each Series A Company Conversion Notice and Series A
            Company Redemption Notice shall be given by facsimile and mail,
            postage prepaid, addressed, to the attention of the Series A Holder
            at such shareholder's facsimile telephone number and place of
            business. Any such notice shall be deemed


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<PAGE>   8
            given and effective and the Person in whose name the certificates
            for shares of Common Stock shall be issued upon conversion shall be
            deemed to have become the holder of record of such shares of Common
            Stock upon the earliest to occur of (i) (a) if such notice is
            delivered via facsimile at the facsimile telephone number specified
            in this Section 5(i) prior to 5:30 p.m. (Eastern Standard Time) on
            any date, such date (or, in the case of a Series A Company
            Conversion Notice, the next Trading Day) or such later date as is
            specified in the notice, and (b) if such notice is delivered via
            facsimile at the facsimile telephone number specified in this
            Section 5(i) after 5:30 p.m. (Eastern Standard Time) on any date,
            the next date (or, in the case of a Series A Company Conversion
            Notice, the next Trading Day after such next day) or such later date
            as is specified in the notice, (ii) five days after deposit in the
            United States mails or (iii) upon actual receipt by the party to
            whom such notice is required to be given.

                  Section 6. Definitions. For the purposes hereof, the following
            terms shall have the following meanings:

                  "Affiliate" shall have the mean ascribed to such term under
            Rule 144 as promulgated by the Commission under the Securities Act.

                  "Commission" means the Securities and Exchange Commission.

                  "Common Stock" means shares now or hereafter authorized of the
            class of Common Stock, par value $.01 per share, of the Company and
            stock of any other class into which such shares may hereafter have
            been reclassified or changed.

                  "NASD" shall mean the National Association of Securities
            Dealers.

                  "Per Share Market Value" means on any particular date (a) the
            closing bid price per share of the Common Stock on such date on the
            Nasdaq Smallcap Market or other stock exchange in which the Common
            Stock has been listed or if there is no such price exchange on such
            date, then the closing bid price on such exchange on the date
            nearest preceding such date, or (b) if the Common Stock is not
            listed on the Nasdaq Smallcap Market or any stock exchange, the
            closing bid for a share of Common Stock in the over-the-counter
            market as reported by NASD at the close of business on such date, or
            (c) if the Common Stock is not quoted on the NASD, the closing bid
            price for a share of Common Stock in the over-the-counter market as
            reported by the National Quotation Bureau Incorporated (or similar
            organization or agency succeeding to its functions or reporting
            prices), or (d) if the Common Stock is no longer publicly traded,
            the fair market value of a share of Common Stock as determined by an
            Appraiser (as defined in Section 5(d) above) selected in good faith
            by the holders of a majority in interest of the shares of the Series
            A Preferred Stock; provided, however, that the Company, after
            receipt of the determination by such Appraiser, shall have the right
            to select an additional Appraiser, in which case, the fair market
            value shall be equal to the average of the determination by each
            such Appraiser.

                  "Person" means a corporation, an association, a partnership,
            organization, a business, an individual, a government or political
            subdivision thereof or a government agency.


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<PAGE>   9
   
                  "Purchase Agreement" means the Series A Convertible Preferred
             Stock Purchase Agreement, dated as of January 16, 1998, between the
             Company and certain purchasers of the Series A Preferred Stock.
    

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Series A Conversion Ratio" means, at any time, a fraction, of
            which the numerator is the Series A Stated Value plus accrued but
            unpaid dividends, and of which the denominator is the Series A
            Conversion Price at such time.

                  "Series A Junior Securities" means the Common Stock and any
            other equity securities of the Company ranking junior to the
            Company's Series A Preferred Stock either as to dividends or upon
            liquidation, dissolution or winding up.

                  "Series A Original Issue Date" shall mean the date of the
            first issuance of any shares of the Series A Preferred Stock
            regardless of the number of transfers of any particular shares of
            Series A Preferred Stock and regardless of the number of
            certificates which may be issued to evidence such Series A Preferred
            Stock.

                  "Trading Day" means (a) a day on which the Common Stock is
            traded on the Nasdaq Smallcap Market or principal stock exchange on
            which the Common Stock has been listed, or (b) if the Common Stock
            is not listed on the Nasdaq Smallcap Market or any stock exchange, a
            day on which the Common Stock is traded in the over-the-counter
            market, as reported by the NASD, or (c) if the Common Stock is not
            quoted by the NASD, a day on which the Common Stock is quoted in the
            over-the-counter market as reported by the National Quotation Bureau
            Incorporated (or any similar organization or agency succeeding its
            functions of reporting prices).

   
      The foregoing Certificate of Designation was adopted by the Board of
Directors on December 1, 1997. A vote of shareholders was not needed
for the adoption of the Certificate of Designation.
    

   
      IN WITNESS WHEREOF, the undersigned President and Chief Executive Officer
of the Company has executed this Certificate of Designation on January 16, 1998.
    


                                    CRAGAR INDUSTRIES, INC.


                                     By:______________________________________
                                          Michael L. Hartzmark, Ph.D.
                                          President and Chief Executive Officer



                                       -9-