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Chrysler Plans to Buy AMC for $757 Million : Reaches Accord on Purchasing Renault's 46.1% Interest; Wants Jeep, Assembly Plants, Dealers

March 10, 1987|JAMES RISEN | Times Staff Writer

DETROIT — Just eight years after nearly going bankrupt itself, a revitalized Chrysler Corp. announced Monday that it plans to spend $757 million in cash and stock to buy American Motors Corp., the small and deeply troubled auto company now better known for its Jeeps than for its passenger cars.

Chrysler gained a virtual lock on AMC by signing a tentative accord Monday morning with Renault, the French auto maker, to acquire its 46.1% stake in AMC for $200 million.

Offers $4 a Share

Later Monday, Chrysler made an offer for an exchange of stock, valued at $4 a share, or $522 million, for the rest of AMC's common and preferred shares. In addition, Chrysler would assume $767 million in AMC debt.

AMC's management, caught by surprise by Chrysler's announcement, said it is still studying the offer.

Despite AMC's severe problems--the company's car sales have been plunging and its losses have totaled more than $200 million over the last two years--Chrysler said it wants to buy the firm to obtain its profitable Jeep line, its brand new mid-size-car assembly plant in Canada and its network of 1,300 dealerships nationwide.

"For Chrysler, the attractions are Jeep, the best-known automotive brand name in the world; a new . . . assembly plant at Bramalea, Canada, and a third distribution system giving us access to a larger market," Chrysler Chairman Lee A. Iacocca said in a statement Monday.

Iacocca added that AMC, which has more than 19,000 employees and is based in the Detroit suburb of Southfield, Mich., will initially remain a separate organization under Chrysler but will eventually be integrated into Chrysler's other automotive operations.

Analysts expect that Chrysler may weed out many of AMC's weakest dealers while retaining most others to sell Jeeps, Renaults and some Chrysler products. But AMC passenger cars are likely to disappear.

Industry analysts agreed that the most important piece of the deal for Chrysler will be the acquisition of the highly profitable Jeep line of utility vehicles and pickup trucks. Analysts noted that the addition of Jeep will expand Chrysler's share of the truck market by about a third to more than 17%, making it more competitive with General Motors Corp. and Ford Motor Co. in the rapidly growing compact truck market.

"I always thought that the chief appeal of AMC was Jeep," said David Healy, automotive analyst with Drexel Burnham Lambert. "It's been very profitable, and Chrysler might very well be able to expand its sales with its larger distribution network."

Analyst Thomas O'Grady, president of Integrated Automotive Resources, estimates that Jeep sales could expand by nearly 50% if they are sold by Chrysler; he believes AMC's small distribution network and its reputation for poor quality have hampered sales.

Shortage of Capacity

Analysts agreed also that the new Bramalea plant, which is just about to open to produce a new line of mid-size cars for AMC, could help ease Chrysler's severe shortage of assembly capacity.

Lacking room to build all of its own cars because of its sales recovery over the last few years, Chrysler has already contracted with AMC to produce Chrysler's rear-wheel-drive luxury cars in AMC's Kenosha, Wis., assembly plant and has also proposed that AMC build its Dodge Omni and Plymouth Horizon subcompacts there as well.

Now, by acquiring the company instead of just using it as a subcontractor, Chrysler will have access to all four of AMC's assembly plants--in Kenosha, Bramalea, Toledo, Ohio, and Brampton, Ontario--which have a combined total production capacity of about 700,000 vehicles annually.

The AMC acquisition, which would bring with it the distribution rights for Renault's cars in North America, could also provide Iacocca with his long-sought dream of building a multinational auto conglomerate capable of competing with General Motors.

'Global Motors' Dream

Iacocca has often talked of how he would like to bring Japanese, American and European companies together to fight the worldwide might of GM, Ford and Toyota Motor Co. Now, with a tie to Renault, coupled with Chrysler's close relationship with Mitsubishi Motors of Japan, Iacocca's "Global Motors" dream seems closer to reality.

But, for AMC, Chrysler's acquisition represents the disappearance of the last of a group of small auto companies--which once included the likes of Packard and Studebaker--that flourished in the shadows of Detroit's Big Three until the 1950s and 1960s, when they could no longer compete with the enormous resources of General Motors Corp.

AMC, created in 1954 out of the merger of Hudson and Nash-Kelvinator, had survived longer than the rest because it was able to form a link in the late 1970s with Renault, the giant French auto maker. Renault eventually bought 46.1% of AMC's 110 million shares outstanding and invested a total of $645 million to keep the struggling auto maker from going bankrupt.

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