The shrinking occurred in 1962 after Chrysler had overheard some GM executives discussing a smaller Chevrolet for 1962 and believed the full-sized Chevy was going to be shrinking. The auto industry knew Ford was coming out with the mid-size Fairlane and Meteor. To date the belief is that the GM people were talking about the new Chevy II, which was a little small for the mid-size market. Personally I believe they were talking about the new Chevelle, which was to have been new for 1964 and being added to the BOP trio - Tempest, F-85 and Special.
Chrysler Corp gained a new president in 1961, Lynn Townsend, who believed Chrysler Corporation's cars should be in a ladder layout - Plymouth builds the small cars, Dodges are next up the ladder, followed by Chrysler and Imperial. Townsend declared that the prices must follow in progession in size and price - Plymouth, Dodge, Chrysler and Imperial. Thus Plymouth kept the 116" wheelbase while Dodge moved up to 119" for 1963 and 1964. In 1965 with the new C body in production and the B body finally set up as intermediate models, Plymouth versions were smaller and cheaper than Dodge. Both got fastback models - Barracuda (A body Plymouth - 108" wb) and Charger (B body Dodge - 117" wb).
Prior to Townsend, Plymouth had the rug pulled out from beneath by Dodge
getting the new Plymouth-size Dart.
Dodge sales rose, but all at the expense of Plymouth and also Dodge sales in the Low-Medium price class. For 1961 Dodge sales plunged while
Plymouth dropped slightly. Both dropped again in 1962, From 1963
Plymouth sales improved with Plymouth being smaller and cheaper than
Dodge in all market segments and hit its peak for the 1973 model year with 908,000 cars built. But Dodge never regained its spot in the Lower-Medium price range. And that's the way things were done while Townsend was in charge.
But when Townsend stepped down as President, the whole ladder of car lines was scrambled. Plymouth's line up was decimated with Plymouth losing product as well as market share. Barracuda was gone, no Monte Carlo competitor, no full-size car line and no luxury compact (eg Diplomat). .And shrinking market share..