There are two ways to look at this week's announcement that DaimlerChrysler is retrenching operations and laying off 20 percent of its workforce by 2002. On the one hand, it is another move by an auto manufacturer that has had trouble responding to a rapidly changing market. On the other, it reflects the slowdown in the U.S. economy. More layoffs are expected as American businesses brace for a tough future. The chief danger is that those moves will create a vicious cycle: Job cuts will depress consumer confidence, which will cut spending, which will trigger more cuts and exacerbate the length and severity of the downturn.

Chrysler was the smallest of the three U.S. manufacturers and no stranger to hard times. In 1978, it took a $1.5 billion U.S. government bailout to save the company from bankruptcy. Labor and management put aside their grievances to turn the company around. They cut costs and overhauled the product line. In the process, Chrysler became the industry leader in per-vehicle profits and was able to repay its government-guaranteed loans seven years early.

But Chrysler's respite was only temporary. Within a decade the company was looking for a partner. It found one in Daimler-Benz, and in 1998 the two companies created DaimlerChrysler, "a merger of equals." While executives may have genuinely expected the two companies to work on a par, the imbalances became quickly apparent.