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In this sequal to American Graffiti, set over the four consecutive New Year's Eve's from 1964 to 1967 depicts scenes from each of these years, intertwined concurrently with one another as though events happen simultaneously. The audience is protected from confusion by the conceit of a distinct cinematic style for each section.

Northern California, New Years Eve, 1964. John Milner (Paul LeMat) is now a drag racer. He and his fellow competitors are racing each other for the right to race against the car made by a national racing team known as "The Factory". He gets to meet his old school friends Steve Bolander (Ron Howard) and Laurie Henderson (Cindy Williams) whom are now married and Laurie is nine months pregnant and expecting twins. Terry 'The Toad' Fields (Charles Martin Smith) also turns up having joined the U.S. Marines and whom is with his fiancee Debbie Dunham (Candy Clark). John also meets Carol (Mackenzie Phillips) whom has dropped out of high school and is now a hippie drifting around the country in defiance of her parental rules. While John deals with his manager wanting him to win the upcoming championship after he loses his latest match. But John has other complications when Teensa (Mary Kate Place) a former high school girlfriend, leaves behind a non-English speaking foreign exchange student named Eva (Anna Bjorn) whom is from Iceland and John attempts to woo her despite the language barrier.

South Vietnam, New Years Eve, 1965. (Note: all of these sequences are shot hand-held on grainy super 16 mm film designed to resemble war reporters' footage.) Terry Fields is serving his tour of duty and sets out trying to wound himself so he can get sent home and be reunited with Debbie, but had a lot of bad luck wanting to do so. After an attempt to shoot himself causes an all-out artillery and airstrike against his location, he deals with his commanding officer, the pompous Major Creech, whom is trying to impress a visiting U.S. Senator both of whom appear indifferent to the troop's living conditions and low morale caused by frequent enemy ambushes and harassing attacks. Terry is partnered with Little Joe Young (Bo Hopkins) the former gang leader of the Pharaohs back home whom deal with a naive and newbie helicopter pilot who seems eager for action, but soon realizes the brutality of the war.

San Francisco, California. New Years Eve, 1966. (Note: these sequences echo the movie of Woodstock using split screens and multiple angles of the same event simultaneously on screen.) Free-spirited Debbie "Deb" Dunham has turned from Old Harper to marijuana and has given up her platinum blonde persona for a hippie/groupie and is now living in a commune with several other hippies including Carol whom has renamed herself Rainbow. Deb and her boyfriend are pulled over in their car where he gets arrested for marijuana posession by a motorcycle cop whom is former drag racer Bob Falfa (Harrison Ford, in an uncredited cameo). As Deb sets about to get bail for her boyfriend, she embarks on a strange surreal acid-induced journey through the city from the strip club where she formerly worked, to the commune, and to a gun-tooting pimp to get the money. As soon as Deb posts her boyfriend's bail, she, Rainbow, and another hippie, named Moonflower, set out to get access to a strange country-western band whom Deb joins on her mystical journey of self discovery.

Modesto, California, New Years Eve, 1967. Steve and Laurie Bolander deal with their crumbling mariage. They have money problems, and Laurie wants to help by getting a job, which the sexist and traditional-minded Steve is absolutely against. He says that a mother's place is in the home and won't talk about it anymore. An angry Laurie storms out and goes to her younger brother Andy's apartment. (Note: Laurie's twin brother Curt is said to be living in Canada as a draft dodger). Andy lures Laurie to an anti-war demonstration at a local college campus. Steve sets out to find Lauire and he too gets caught up in the protest which leads into a full-out riot. (Note: these sequences attempt to memorialize the late 1960s with the scenes that recreate the sense and style with references to Haight-Ashbury, the campus peace movement, the beginnings of the modern woman's liberation movement and the accompanying social revolt.) One character burned his draft card triggering the rioting... showing a younger audience what so many Americans had done on the television news ten years before the movie's release. More scenes afterwords show both Steve and Laurie's reactions to the police brutality on the campus demonstrations with billy clubs during the protest.

In 1964, John beats everyone, but wrecks his car in the last race. With only a few minutes to make repairs, all of the other teams help John and his team make the repairs and get to the starting line before having to forfeit. He beats the Factory car, and is told by their owner that he has what it takes to go pro. Also, with the help of a groundskeeper acting as a translator for Eva, he managed to tell her how he feels towards her before she leaves. The segment ends with John driving his trademark yellow Deuce at night along a lonely highway toward another vehicle's headlights, and is never seen going further... hinting that the crash was in that vicinity.

In 1965, when Terry and Joe's chopper is shot down behind enemy lines and Joe ends up dead from a sniper's bullet, Terry and the pilot Lance, are rescued, but Terry becomes alinated with Major Creech who downplays the events to please the visiting Senator. Later that night, the Creech is cutting a cake made for him and his officers that was presented by Terry. Terry runs to the latrine he is assigned to clean when the cake is cut. Instead of the cake blowing up (as the viewer is led to believe would happen), the latrine blows up.Terry fakes his death in a latrine explosion in which he is declared missing in action. In the final scene, Lance meets with Terry who gives him the supplies he needs as Terry sets off to hide out in Europe, free from his war duty (It is never revealed what happened to Terry's fate afterwards if he really did escape from Vietnam).

In 1966, Deb goes to a local band to see if they will give her boyfriend a tryout. Newt (Scott Glenn), the leader of the group, is reluctant to do so, but Debbie, Rainbow, and Moonflower tag along to their next gig at a country bar in order to keep convincing Newt. He finally does, but he also begins falling for her. At the gig, Newt puts Debbie in the band as a tambourine player. While performing, she sees her boyfriend at the club dancing erotically with another woman. Debbie jumps off the stage and confronts him. The confrontation eventually leads to a huge bar fight. At the end of the night, Debbie has dumped her boyfriend and is asked to join the band permanently, which he does. She and Newt also begin a relationship.

In 1967, Steve and Laurie and all their friends are arrested. When the police begin to abuse Laurie, Steve loses it and begins punching out the cops. He is quickly joined by all of the other arrested protesters and Steve, Laurie, Andy and his girlfriend escape custody. Back home, Steve tells Laurie that he has changed his mind and she can get a job.

As with the first American Graffiti movie, the audience is given a last still images of the main cast and what became of them:

-John Milner was killed by a drunk driver in December 1964.

-Terry Fields was reported missing in action near An Loc in December 1965.

-Steve Bolander is an insurance agent in Modesto, California.

-Debbie Dunham is a country western singer living in Oklahoma.
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