AUBURN HILLS, Mich. (AP) _ Slumping sales on some models and the cost of buying incentives drove Chrysler Corp.'s third quarter profits down 35 percent, the company said Friday.

But the performance beat analysts' expectations and set the stage for what could be a promising end of the year and start to 1998, the automaker and analysts said.

``The best is clearly yet to come,'' said Scott F. Merlis, president of Merlis Automotive International Inc. ``In this quarter you had some seeds and costs for new products. In the future quarters, you begin to harvest some of the seeds.''

Chrysler earned $441 million, or 65 cents a share, in the July-September period compared with $680 million, or 93 cents a share, a year earlier. Revenue fell to $13.2 billion in the quarter from $14.4 billion during the same period of 1996.

Wall Street analysts expected Chrysler to earn about 58 cents a share. Merlis said the earnings were better than analysts expected because Chrysler managed some additional cost cutting.

Chrysler's U.S. vehicle sales fell 8 percent in the quarter, which contributed to the drop, the automaker said. Sales of minivans and subcompact Dodge and Plymouth Neons in particular suffered.

The automaker on Friday announced $1,500 cash allowances for Neons and up to $1,000 for minivans. ``I don't see incentives disappearing any time soon for anyone,'' said James P. Holden, Chrysler's vice president of sales and marketing.

But the incentives took their toll. Chrysler spent $1,140 per vehicle on incentives last quarter, compared with $685 per vehicle in the third quarter of 1996 _ a 66 percent increase.

``It was a poor quarter because of pressure on prices from the competition _ higher incentives and higher marketing costs were the rule,'' said David Healy, an analyst with Burnham Securities Inc.

The increase in incentive spending accounted for 40 percent of the profit difference between the third quarters of 1996 and 1997, Chrysler officials said.

Chrysler, the nation's No. 3 automaker, also said sales slowed as it prepared its factories for making the Dodge Intrepid and Chrysler Concorde midsize sedans. The automaker has high hopes for earnings from those two models, along with the Dodge Durango sport utility vehicle.

The glory days of 1996 profit-making could return in the months ahead, Chrysler officials predicted. ``We are not at all concerned we can't repeat performances like '96, and beat performances like '96,'' Holden said.

Chrysler's quarterly results included a $25 million after-tax cost as a result of discontinuing Chrysler's Eagle brand at the end of the 1998 model year. Third-quarter 1996 earnings were affected by a $55 million after-tax charge for an early retirement program.

For the first nine months of this year, Chrysler earned $1.95 billion, or $2.83 a share, compared with $2.7 billion, or $3.65 a share, in 1996. Nine-month revenue fell to $43.7 billion from $45.2 billion in 1996.

Chrysler was the first of the Big Three automakers to report third quarter earnings. General Motors Corp. is to report Tuesday and Ford Motor Co. is to report Wednesday.