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Chrysler comeback shows new strength by purchase of AMC

Chrysler's purchase of American Motors yesterday shows just how far back from the brink of bankruptcy Lee Iacocca's company has come in six years. One sign of that comeback - which included the early repayment of $1.2 billion in government loans - is that Chrysler last year hired American Motors' Kenosha, Wis., factory to produce such popular Chrysler models as the Fifth Avenue and the Diplomat.

Now Chrysler is formalizing that arrangement by buying a 46 percent stake in American Motors (AMC) from France's Renault and tendering $4 a share for all of AMC's outstanding shares. All three automakers stand to gain much from the sale.

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The $1.6 billion deal comes as Chrysler's factories are churning at nearly 100 percent capacity. Adding the AMC stake will provide Chrysler with more potential output, more flexibility to offer new models to niche markets, and the addition of AMC's popular and well-known Jeep.

``More than anything else it looks like Lee Iacocca is bored and he wants another car company to turn around,'' says Christopher W. Cedergren, senior auto analyst with J.D. Power & Associates, an automotive consulting firm.

``The move certainly gives Chrysler more of a competitive edge and tremendous strength in the light truck market,'' Mr. Cedergren says. ``It bodes well for AMC, giving it the benefits of strong management and a great deal more capital.''

Renault is clearly heaving a sigh of relief. AMC had become a political and economic liability for the state-owned French automaker. French labor unions had grown agitated as more and more capital sank into the US venture.

The Renault-AMC deal was signed in 1979. Renault had high hopes that the purchase of AMC would be their key to the vitally important US car market.

In the early years of the arrangement, according to a businessman familiar with it, the partnership worked well. Renault bankrolled the downsizing of AMC's Waggoneer and Cherokee models, and American Motors executives Americanized one of Renault's models and turned it into the popular Alliance.

But then, this source says, Renault workers and unions began to resent the success of their American counterparts. Mid-level bureaucrats at Renault began to slow down the flow of new products to AMC, and the working relationship between AMC and Renault deteriorated.

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``The takeover doesn't surprise me,'' says Vernon Lacey, AMC's chief economist. ``Renault has been under a great deal of pressure at home from its labor unions. ... They've had a very difficult time of it, and we've had a very difficult time, too.''

Renault's hopes were not fulfilled, analysts say, in part because of quality problems and because French car designs just did not ``sit well'' with Americans.

Also, Renault picked this time to get out because ``we're entering a whole new ballgame, a game of change,'' Cedergren says. ``The US auto market will become extremely competitive over the next five year, and they [Renault] were concerned about their viability in that marketplace.''

As Japanese and South Korean manufacturers open plants in the United States later this year, competition will get even hotter. But under the new regime, Chrysler will be able to carry out its cost-cutting programs and instill its production, marketing, and management approaches in AMC.

``This not only makes Chrysler a much stronger competitor with GM and Ford,'' says AMC's Mr. Lacey, ``it makes them very, very strong against the Japanese and in the world market.''

The lone dark cloud is the potential for problems with the United Automobile Workers (UAW). ``Buying AMC gives Chrysler some manufacturing facilities, but it also give them some pretty fractious employees,'' says Lawrence Harbeck of the University of Michigan.

``The Kenosha employess are a rough bunch,'' Mr. Harbeck says. ``When AMC had only that plant, the UAW guys used to say, `We have the hammer' - meaning that they could strike the plant and shut the company down.''

This time, though, Mr. Iacocca may be holding enough of the right cards to make his deal with AMC work the way he wants it to.

With AMC's new 150,000-car plant scheduled to open soon in Ontario, Iacocca has alternatives if Kenosha employees strike. Also, the Kenosha plant is known throughout the industry as a dinosaur and could be closed at any time to improve productivity.

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