This invention relates to the preparation of a dynamically vulcanized alloy comprising at least one elastomer and at least one thermoplastic resin. More specifically, the process produces dynamically vulcanized alloys with unique morphological features which have good impermeability and low temperature flexibility. In the process, the thermoplastic resin is added into the extruder in two stages with an intermediate addition of a compatibilizer. Also during the final addition of thermoplastic resin, the elastomeric curatives are added to the extruder.