Will the real Chrysler please stand up?

updated 3:04 p.m. ET April 8, 2009

NEW YORK - Chrysler unveiled a new SUV at the New York International Auto Show on Wednesday, but a smaller vehicle grabbed a lot of attention: the Fiat 500 that brought Chrysler President Jim Press to the stage.

"Wouldn't that make a great new company car?" Press said as he stepped out of his subcompact ride. "We're dreaming about the possibilities for the future."

Chrysler LLC needs those dreams to become reality quickly if the Auburn Hills, Mich., automaker expects to survive much longer.

The Obama administration issued a scathing rejection of the company's survival plan March 30 and gave it 30 days to secure a merger with another automaker, most likely Italy's Fiat SpA. Without a deal, the government said Chrysler won't be able to meet an expected increase in demand for small cars, and it won't get any more federal aid, leaving it likely to be liquidated in bankruptcy court.

The White House also scolded Chrysler for having a product lineup heavily weighted with trucks and SUVs, yet the only new product the company is unveiling at the New York show is a redesigned Jeep Grand Cherokee.

Chrysler insists the SUV, which clocks in at 20 mpg in its two-wheel-drive version and 19 in four-wheel-drive, is a crowd favorite and a crucial part of its lineup.

"This is a very important vehicle for us. It's one of the primary legs of the Chrysler stool," Chrysler spokesman Rick Deneau said. "Customers have told us they want this vehicle and that it's the right size."

The 2011 model is 11 percent more fuel efficient than its predecessor, powered by a cleaner and more powerful engine. Still, Chrysler's decision to unveil it just a few days after the government's criticism seems like odd timing to say the least.

But Chrysler is standing by the Grand Cherokee. It's profitable, recognizable and the No. 2-selling vehicle in the Jeep lineup. Grand Cherokee sales fell by almost half during the first three months of the year, but its market share has remained steady, according to Autodata Corp.

Video   Press on Chrysler April 8: CNBC’s Phil LeBeau talks to Chrysler’s Jim Press about the new Jeep Grand Cherokee and the outlook for the company. CNBC

"It is one of their most important vehicles," said John Wolkonowicz, senior automotive analyst for the consulting firm IHS-Global Insight. "The market for SUVs has not completely gone away, particularly for smaller ones like the Grand Cherokee."

The automaker expects its tentative partnership with Fiat to plug the holes in its small-car offerings. It hopes fuel-efficient Fiat cars, like the two-seater 500, will sell on this side of the Atlantic.

Press said the car's cameo at Chrysler's news conference illustrates the possibilities of a Chrysler-Fiat partnership.

"It shows you the breadth of our portfolio and the possibilities that this marriage could have," he said.

Later, Press told reporters that Chrysler is working "24 hours a day" to reach a deal, and "at this point in time with Fiat, we don't see anything that would be an impasse or a deal breaker."

But even if an alliance with Fiat goes through, the Italian automaker's vehicles wouldn't make it to the U.S. until 2011. Until then, Chrysler, which is clinging to a $4 billion taxpayer lifeline, has little choice but to survive on revenue from its current vehicle lineup.

"I think it's going to be written up as being out of touch, but from a business standpoint, I think it's the right thing to be doing," Wolkonowicz said of the Jeep's unveiling.

In fact, the new Grand Cherokee's new engine does manage to eke out higher fuel economy on top of additional power. Assuming a customer opts for the 20 mpg Cherokee, that means a driver who logs 10,000 miles in a year will spend about $1,020 on gas at today's prices.

That's on par with the fuel economy of competitors like the Toyota Highlander.

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