Chrysler tries to steer out of its difficulties

Chrysler is trying to cut its way back to significance. It's going to hurt.

The automaker's 71,000 employees will be on "mandatory vacation" for two weeks in July when all operations across the country are shut down, the company said Thursday.

A forced break is drastic, though for Chrysler perhaps not surprising considering its financial straits.

After losing $1.6 billion last year, it announced plans to shutter offices, reduce its workforce, eliminate dealerships and do away with redundant models. But with one of the least fuel-efficient fleets on the road, inventory piling up on dealer lots and the popularity of its top seller -- the Dodge Ram pickup -- slumping along with the housing market, there's reason to suspect that cutting alone won't be the solution.

Unless Chrysler figures out how to increase sales and build cars and trucks that people want, the 83-year-old company's prospects will be dim.

"Chrysler is in a tailspin," said Dennis Virag, president of the Automotive Consulting Group in Ann Arbor, Mich., repeating oft-heard speculation that the carmaker may be forced to sell off valuable assets. "In two or three years, there may not be a stand-alone Chrysler company anymore."

The comedown has been dramatic for Chrysler, which is No. 4 in U.S. sales volume behind General Motors Corp., Toyota Motor Corp. and Ford Motor Co. (Toyota has plans to cut back too, saying Thursday that it would trim production of full-size Tundra pickup trucks as U.S. vehicle sales slow.)

After nine years under the direction of German automaker Daimler, Auburn Hills, Mich.-based Chrysler was acquired in August by Cerberus Capital Management in a highly leveraged, $7.5-billion deal. Hopes were raised that a private equity firm, thanks to its relative agility compared with publicly held companies, would be able to rapidly turn Chrysler's fortunes around.

To do that, Cerberus hired Robert Nardelli, former head of Home Depot Inc., as chief executive and brought on Toyota's top man in the U.S., Jim Press, as vice chairman and president, a brain trust that had the industry buzzing.

But slumping credit markets, combined with Chrysler's continuing problems of overproduction, excess inventory and a dealer network far too large for its market share, turned the renewal efforts into what Nardelli called "recovery" in Thursday's memo to employees.