MINNEAPOLIS -- Dominating one wall in Charles A. Zelle's office is an aging poster of the liner Lusitania, proudly plying the ocean in the glory days before it was torpedoed by a German U-boat.

It is there as a constant reminder to the president of Jefferson Lines Inc., the country's second-largest bus line after Greyhound, that just because the bus company has survived through three generations of his family, there is no guarantee it will survive forever.

"It reminds you that nothing is sacred," Zelle said.

For Zelle and Jefferson, there has been a tough transition from the safe, regulated environment of the 1960s and 1970s to the uncertainties of a rough-and-tumble era of deregulation and decline for the bus industry. In mid-June, the company emerged from Chapter 11 bankruptcy protection after instituting painful cuts in equipment and personnel.

Jefferson Lines is one of perhaps 200 regional bus companies across the country; some feed passengers to Greyhound and some compete with the country's only nationwide bus line. These are the companies that may or may not fill some of the gaps in rural bus transportation as Greyhound retrenches to the more profitable big-city runs.

Just as Greyhound has been buffeted by change, companies like Jefferson have been forced to deal with a new order brought on partly by the deregulation push begun by President Jimmy Carter; inexpensive, deregulated airline fares; the continuing growth in automobile travel; and the failure of bus companies to provide service or facilities that attract riders.

In the 1970s, many bus lines were highly profitable. "You didn't have to work very hard in this business," said Zelle, who added that many other such third-generation owners "live a comfortable life" because of the profits of the second-generation era.

The tax advantages of buying and selling buses, aided by a period of rampant inflation, produced large amounts of money in the 1970s. "They {buses} really were cash cows," Zelle said.

But Zelle said prosperous managers did little to react to the consequences of deregulation as their charter business, in particular, faced cutthroat competition for the first time. They did no market research to determine who used their service, did little to control costs, and did nothing to change the bus aura of "the smell of diesel, the wrong side of the tracks," he said.

"Our mission till recently was, 'We're a bunch of guys with a bunch of buses,' " Zelle said.

That has changed now. Zelle, lonesome for Minnesota and the bus business, returned from a Wall Street career to apply some of what he had learned outside the bus industry. Firing top management and taking the company into Chapter 11, Zelle began slashing. When he arrived, Jefferson had 500 employees; now it has about 275. It had 188 buses; now it has 84. It operated out of 11 charter locations; now it has five.

"Within six months, things have turned around," Zelle said.

Despite the cuts, Zelle abandoned only one route -- Sioux City through Fort Dodge to Waterloo, Iowa -- right across the rural heartland.

"My phone went wild," Zelle said, after he announced that cut. Newspapers and radio stations descended on him, and he received a number of letters, mainly from elderly people. Yet, he said, not enough people were riding the bus to justify the route, and "this company can't afford unprofitable routes."

Instead, he helped establish a van service from Fort Dodge east to meet his north-south service at a point on U.S. 65 that has become known as "Boondocks."

"I don't think a lack of buses has killed rural America," Zelle said. "I think the downfall of rural America hurt buses."

In Washington, however, policy makers generally agree that it is the riders who deserted the bus in rural areas and that few are inconvenienced when bus routes are abandoned.

"It sounds a little heartless to look at the numbers, but the number of people who fall through the crack is very small," said Joe Canny, deputy assistant transportation secretary for policy and international affairs.

David Rafiel of Rural America, an advocacy group that promotes rural transportation, said "the handwriting seems to be on the wall" for intercity buses in rural areas. "Absent any help from the federal government, there will be a continuing decline of service for both passengers and small packages."

But Rafiel said locally operated vans and small bus systems seem poised to take up the slack over the next decade. "I don't think anyone is saying the need has been filled, but something very important is on the horizon," he said.

Greyhound, also recognizing the problem, has established "The Rural Connection" program to help rural areas establish van systems to deliver people to the nearest Greyhound station. As of February, Greyhound said 69 systems had been established in 16 states to serve 750 communities.

A May 1989 study by Robert R. Nathan Associates confirmed the anecdotal evidence about who is riding buses: half are over 65 or under 18. Bus riders tend to be poorer than plane and train travelers, and about a third of those surveyed listed rural destinations.

Bus drivers in the Midwest confirm the statistics and take them a step further. Tom Mead of Jefferson Lines said that daytime runs tend to be filled with elderly people while runs beginning late at night tend to be filled with a poor, sometimes down-and-out crowd. Late-night buses tend to be crowded at the first of the month when welfare checks come out, he said.

Zelle said he will try once again in small-town America, first by improving his service and then by marketing it. Driver training, including training in courtesy and service, will be a part of the effort, he said.

"A lot of companies complain it's tough in rural America," he said. "But I think there are a lot of things that are exciting in small towns."

Zelle said the federal government has been inequitable in its transportation policies, favoring planes and trains, but he has mixed feelings about subsidies for rural bus service.

"It does gall me that the Metroliner has all its capital costs paid, and I can't get a good bus up to Brainerd," he said.