I wonder if there is a good story / reason why they used this car for their album cover photo, album was produced in 1967-68

Steve foud out pdq. 

According to Revolvy, "The cover is styled after one of the promotional photographs for the movie Bonnie and Clyde that showed the gang holding machine guns." Well, the movie Bonnie and Clyde premiered in LA the same month that the Peter, Paul and Mary album came out and the soundtrack cover was this:

Both albums and the movie were produced by Warner Brothers

Oh, and according to http://www.popspotsnyc.com/forthcoming_new_york/ the cover for PPM's Album 1700 was shot at 70 Bedford Street between Commerce Street and Morton Street, New York:

https://www.discogs.com/Peter-Paul-And-Mary-Album-1700/release/1433047

as with most photo shoots, more than one photo was taken then, and this other was used on the "Best Of" album cover
 https://recordsale.de/en/artists/peter-paul-mary/albums/the-best-of-peter-paul-and-mary