Fifth Avenue, Dodge Diplomat : AMC to Manufacture Luxury Autos for Chrysler in Kenosha
In an unprecedented move for the modern U.S. auto industry, American Motors has tentatively agreed to build luxury cars and family sedans for Chrysler at AMC’s under-used Kenosha, Wis., assembly plant, the two firms said Monday.
When AMC begins to produce Chrysler’s remaining large, rear-wheel-drive cars--the Plymouth Gran Fury, Dodge Diplomat, and Chrysler Fifth Avenue--next February, it will mark the first time since World War II that one domestic auto maker will be building cars for another in the United States, industry experts said. The last time Detroit’s cross-town rivals cooperated to build each other’s vehicles was apparently during the war, when the major auto makers produced Jeeps for the Army under license from Willys-Overland.
Chrysler apparently decided to subcontract the assembly of highly profitable full-sized cars because it has run out of room in its own plants. The cars are now built at a Chrysler facility in St. Louis that will be closed later this year and converted to produce Chrysler’s popular mini-vans beginning early next year.
The No. 3 auto maker had initially planned to phase out its rear-drive cars when it decided to put mini-van production into the St. Louis plant. But falling gasoline prices have made big cars so popular that Chrysler didn’t want to abandon them. A Chrysler spokesman said the company now hopes to keep the rear-drive cars in production at Kenosha for at least another two or three years.
The three big models to be built at Kenosha are among the most profitable passenger cars Chrysler sells, accounting for between $200 million and $300 million in pretax profits for the auto maker, industry analysts estimate.
For AMC, meanwhile, the Chrysler deal is a godsend. Its Renault Alliance and Encore subcompact models, now produced at the Kenosha plant, have suffered a severe sales decline in the last two years, and the company can hardly justify keeping even one full shift of workers busy building them. AMC says that it has 2,900 hourly workers on the job at Kenosha now, with another 3,750 on layoff.
AMC said it will recall 3,200 hourly and 300 salaried workers in Kenosha because of the Chrysler pact. The auto maker has already forced the United Auto Workers local in Kenosha to agree to streamlined work rules in order to win the Chrysler work.
The two firms refused to say what the deal is worth, but an AMC spokesman said Chrysler will pay AMC a fixed fee and an additional commission for each car produced. AMC said it could produce up to 150,000 cars a year for Chrysler at Kenosha; last year, Chrysler sold 161,556 of the rear-drive units, but expects sales to slow somewhat this year.
But some industry analysts wondered Monday whether Chrysler might be risking a backlash from its customers by using an AMC facility.
“Chrysler could be making a mistake longer term, if it gets poor quality from AMC,” said Michael Luckey, an automotive analyst with Shearson/American Express.
