UPDATE 2-Chrysler executive says fuels key to success

(Recasts, adds details on alternative fuels)

WASHINGTON, Jan 22 (Reuters) - Research and development in fuel alternatives for gasoline should be the auto industry’s top priority, even in a weakened economy, and even if it means companies delay expanding or other expensive strategic decisions, the president of Chrysler LLC said on Tuesday.

“Alternative technologies have to come first. It may squeeze our ability to invest in other things that may be important, but we can’t afford,” said Jim Press, who is also Chrysler’s vice chairman.

For instance, Press said auto companies may have to defer product lines in certain segments in order to find realistic fuel alternatives that consumers will accept.

“It may take us longer to move into other markets of opportunity where we are not right now,” Press told reporters at the Washington Auto Show.

Automakers, especially struggling Detroit-based Chrysler, General Motors Corp GM.N and Ford Motor Co F.N are under pressure to meet sharply higher fuel standards -- 40 percent above today's levels -- in the United States, beginning in 2012.

The response, industry experts said, will take billions in research funding and more money to retool plants, develop fuel distribution networks, train workers and market new vehicles. The industry also expects government help. This could come in the form of tax breaks, research grants and credits for low interest loans.

In the near term, privately held Chrysler and other rivals are concentrating on developing more efficient gasoline engines and advanced transmissions to maximize fuel efficiency and reduce U.S. dependence on oil imports.

But Press, who came to Chrysler last year after introducing the popular Prius hybrid to the U.S. market while at Toyota Motor Corp 7203.T, said higher fuel standards and alternative fuels are here to stay.

“Not just us. You will see electric drive and hybrid technology in virtually everything. Eventually, every car will be a hybrid at some point,” Press said.

Chrysler showed off three “green” concept vehicles at the North American International Auto Show in Detroit last week, including an electric model. The company is also researching diesel-hybrids and hydrogen fuel cells. “All those technologies will be deployed at different levels by each manufacturer,” Press said.

On the company’s near term outlook, Press said Chrysler expects the industry to sell roughly 15.5 million vehicles in 2008, which is slightly lower than other forecasts.

“We planned on a lack of economic growth,” he said of Chrysler’s turnaround strategy that has included plant closings and massive job cuts.

Chrysler has a realistic business plan and hopes to avoid future large scale buyouts or other downsizing because of U.S. economic woes.

“I can’t speculate. We sure hope to avoid anything like that,” Press said. “The answer will be where the economy goes.”

GM is planning to offer buyouts to thousands of workers in a further move to cut costs.

Private equity group Cerebus bought Chrysler last year from Germany's Daimler AG DAIGn.DE. (Reporting by John Crawley; Editing by Steve Orlofsky/Andre Grenon)