Despite US warning, Chrysler to unveil the new Cherokee

Chrysler however insists the Jeep Grand Cherokee, 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 debut an SUV as its only new car at the New York International Auto Show seems like odd timing to say the least.

On March 30, the Obama administration issued a scathing rejection of the company's survival plan and gave it 30 days to secure a merger with another automaker, most likely Italy's Fiat SpA.

The White House slammed Chrysler for having a product lineup so heavily weighted with trucks and SUVs. It added that the automaker does not have enough products in the pipeline to meet an expected increase in demand for small cars.

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.

"It is one of their most important vehicles," said John Wolconowicz, 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."

And Chrysler, which is clinging to a $4 billion taxpayer lifeline, has little choice but to focus on the present.

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.

But even if an alliance with Fiat goes through, the Italian automaker's vehicles wouldn't make it to the U.S. until 2011. That means that until then, Chrysler 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," Wolconowicz 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.

The Grand Cherokee also features an air suspension system that lowers the vehicle at higher speeds to improve aerodynamics and fuel efficiency, while also delivering 33 percent better horsepower than its predecessor.

Still, it's no gas sipper. A 2009 Toyota Camry, by contrast, gets 26 mpg and would cost the same driver $785 per year in gas.

The Cherokee is the first of two dozen vehicles that Chrysler, widely believed to be the weakest of the Big Three automakers, says it plans to unveil over the next four years. If the automaker secures a merger along with concessions from its union and other stakeholders, the $6 billion in additional loans promised by the federal government will certainly help it reach that goal.