Jack Flack first got suspicious when he saw Bob Nardelli's smiling head-cut on page 1 of Friday's WSJ, under a story headlined with "Chrysler Faces Financial Pinch, Sees Asset Sales." The Journal's Joesee Valcourt and Neal Boudette led with:

Chrysler LLC has slipped into a serious financial crunch just four months after Cerberus Capital Management LP swept in to save the auto maker.

At a meeting earlier this month, Chief Executive Robert Nardelli told employees the company is headed for a substantial loss this year and is scrambling to sell assets to raise cash, according to an account by two people present that Mr. Nardelli confirmed.

"Someone asked me, 'Are we bankrupt?'" Mr. Nardelli said at the meeting. "Technically, no. Operationally, yes. The only thing that keeps us from going into bankruptcy is the $10 billion investors entrusted us with."

Bankrupt? Holy Smokes!

So why was Jack Flack suspicious, instead of simply concerned? Because he not only smelled the Chrysler story being managed, he smelled it being managed quite clumsily.

After all, consider Jack Flack's PR advice to Nardelli in a Rescue Memo back in October.

Frame the crisis--and then the solution. Establish the context by declaring that the world changed long ago and that Chrysler teeters on extinction. Point to a long history of woes, and make the case that Chrysler will never escape from recurring crisis until it is completely recast. Your language should sound something like this:

"Folks, it's much, much worse than we thought. Our business model is fundamentally flawed, and it has been for decades. Iacocca couldn't fix it, and neither can I. If we want Chrysler to exist a decade from now, then we are going to have to drastically change our basic composition. We can create a great business, but we will have to move boldly."

So, based on the way the Journal reported the story, it appeared like "the crisis" had indeed been framed with employees, and then somehow things got a little bit out of hand. In fact, here's how Nardelli tried to tamper it down in the WSJ Q&A:

The message there was in a town hall meeting. I was trying to convey a tremendous sense of urgency now that we're a free-standing company...I wanted to be transparent, candid about the condition of the company so it was to set a tone.

Then, the suspicions became full-fledged conclusions when Chrysler back-pedaled Friday evening, issuing a statement at 5:34 titled, "Chrysler Chairman and CEO Expresses Confidence in Chrysler's Operations, Products, Finances and Employees." Apparently, the interview with the Journal had not produced the intended results.

There have been several recent media reports that have painted an inaccurate picture of Chrysler LLC's current financial position. Therefore, the management of Chrysler and our parent company, Cerberus Capital Management, L.P., felt it imperative to correct the record since such misinterpretations and misperceptions are misleading and could leave the wrong impression in the minds of investors and other interested parties.

First and foremost, it is important to note that Chrysler is not only meeting, but, in many cases, exceeding its financial targets heading into 2008.

Importantly, Chrysler has ample liquidity. We are fully funded with working capital to meet our present and future needs and objectives.

What prompted the statement?

Well, most likely, the words that were intended to chill employees also frightened Chrysler's other constituents, most notably Chrysler's dealers, Cerberus' investors and potential car-buyers now wondering if their warrantees would become worthless. Imagine the phone call Nardelli likely received from media-allergic Cerberus boss Stephen Feinberg?

The corrective statement triggered a quick report from Reuters at 7:51, which was followed by a slightly more thorough story from Boudette six minutes later. With most business reporters already on the way to Grandma's house the weekend before Christmas, the Reuters story got big pick-up from skeleton-staffed newsroom nationwide.

As a result, the Chrysler story has become a bit mangled, and a consensus view on the company's economic health has yet to emerge. And it may never do so, given that Cerberus has virtually no public disclosure requirements. But Chrysler cannot afford to leave things where they are right now, and must work to create a realistic understanding of their financial health that ensures decent organizational tension without inciting panic with the company's business partners.

So what are the lessons?

Beware Hot Words. Certain "hot" words cannot be resisted by reporters. And for business reporters, "bankruptcy" is one of those words. There's a big difference between explicitly invoking the specter of formal insolvency, and saying, for instance, "our current business model does not work" or "our cost structure needs to be reset." And given that hot words are, by definition, noteworthy, memorable and easily repeatable, they tend to travel fast, which is why you must...

Beware the illusion of "internal." There's no such thing as "internal" any more, particularly in the U.S. auto business where sketchy job security makes for chattering employees, and the independent dealer network gossips like a, well, an independent network.

Beware the amplifying power of exclusives. If only one media player has the story, it will instinctively position the story as bigger news than it would if its competitors had the same information. Thus, a comment at cozy employee "town hall" becomes a cannon blast on page 1 of the world's leading business newspaper.

Also, Jack Flack suspects that Valcourt and Boudette suspect Nardelli of over-selling the burning platform internally for spin purposes. The conscious reference to the Cerberus assignment as a vehicle for Nardelli "to redeem his reputation" indicates the reporters have a clear sensitivity to the spin dynamics at play relative to Nardelli's personal legacy. It also reflects a greater reliance on pop psychology than the Journal traditionally indulges, given that Nardelli has never actually mentioned such redemption as a motivation for taking the job.

(And yes, all flacks are assuming Jason Vines was probably having a nice giggle somewhere.)

Meanwhile, even though resetting Chrysler's break-even point is essential, Nardelli himself has confirmed many times that the company cannot succeed without also generating top-line growth, i.e., selling more cars. While some assume the Cerberus-owned Chrysler will never actually attempt to build more attractive cars, Jack Flack hopes that's not the case. But even if Chrysler does improve the vehicles, it won't mean anything unless the demonstrates it can be in as bold in its future marketing efforts as it has been in telling its own people how bad things are.

Doborah? You're up.