Chrysler has persuaded competitor American Motors Corporation to give it a hand in building as many as 150,000 older-line Chrysler mid-size cars in an AMC plant in Wisconsin. Early next year, some 3,500 previously laid off workers will return to the underused Kenosha, Wis., plant to begin producing Chrysler Fifth Avenues, Dodge Diplomats, and Plymouth Gran Furys. A letter of intent, subject to final ratification, was announced Monday.
While unusual and historic, the linkup between rivals is not a trend-setting agreement, analysts say. It will, however, help bolster struggling AMC and add icing to Chrysler profits over the next few years.
In this way, Chrysler will continue making money on a profitable yet aging line of cars as it makes the transition to its new C-body cars.
Chrysler plans to ship the tooling for the various models from its St. Louis plant to the AMC plant in Kenosha, which is described by one analyst as one of the ``least productive and poorest quality plants in the nation.''
Still, the agreement means Chrysler won't have to convert one of its modern plants to making models it is already planning to phase out during the next 12 to 18 months.
``Chrysler is in an unusual situation right now,'' says John Hammond, an auto industry analyst with Data Resources Inc. ``They're at the peak of their cycle and short of capacity right now.''
Although auto companies regularly purchase parts from one another, it is highly unusual for one competitor to make another competitor's car. AMC has struggled for years and hasn't thrived under the ownership of its French parent, Renault.
Under the new agreement, analysts estimate that AMC could earn somewhere between $300 and $400 per car. This could mean as much as $60 million to AMC, which lost $125.3 million last year.
Chrysler's profit margin, less the amount it will pay AMC, will still be around $1,500 on some of the car models. The agreement could add more than $160 million to the company's net income, analysts say.
``We need a place to make [the Fifth Avenue] because it's so profitable,'' said a Chrysler executive who asked not to be identified. ``All the tooling has long since been paid for. The darn car just won't die.''
Still, analysts say the move doesn't mean AMC is likely to become a swing producer in the industry, filling gaps in production at General Motors, Ford, and Chrysler. ``It's historic, but it just won't be a trend-setter,'' says Mr. Hammond at Data Resources. ``Over the long term, the industry is going to be suffering from overcapacity, not a shortage.''