Not an expert, but I believe the drywall in your garage, if attached, is usually required to be 5/8" in order to establish a 1 hour fire rating between the garage walls/ceiling and the living space. Maybe in 1986 it was different, but that's what it is now. The drywall also acts as sound attenuation between the two. If you cover the existing with 1/4", you increase the fire rating AND the sound mitigation into the living space. Putting something like T-11 or other paneling on the walls doesn't really do any of that. Ripping out the existing drywall (not necessary) and using those materials on the walls will look great, but takes away the fire rating AND the sound mitigation into the living space.
All that said, I have just started redoing my garage. For all the walls/ceiling, I am either going to add 1/4" to two of the walls and ceiling that abut the living spaces, putting "Green Glue" between the existing drywall and the new 1/4" (for sound proofing, so I can blast the music in the garage without my wife complaining) and then paint over everything...............OR, just keep the existing drywalled walls and put something like a Slat Wall system up for shelving and storage. I may try to use the Green Glue with the Slate Wall material, to see if it gives me any additional sound mitigation.
Again, just my thoughts.