Once Upon a Car Part 2

The four Chrysler executives who accompanied Zetsche to Stuttgart had known for a few days that he was in a good position for the promotion. Still, there was a chance the board would select Schrempp's protege, Eckhard Cordes, for the job. When Zetsche emerged from the boardroom triumphant, the Chrysler guys were ecstatic. "Dieter had won," said Jason Vines, Chrysler's communications chief. "We were so freaking excited."

Right after the board meeting, Zetsche and his executives got aboard the Gulfstream, settled back into its luxurious cabin, and popped the corks on bottles of French champagne to toast his victory. They were flying back to a hero's welcome in Auburn Hills, and it promised to be a glorious event. Not only was Zetsche going to become the chief executive of DaimlerChrysler on January 1, 2006, but his successor at Chrysler would be one of the men on the jet: Tom La-Sorda, a Canadian-born manufacturing expert who had joined the company five years earlier after spending twenty-three years at GM.

The next day, hundreds of employees gathered in the immense atrium at the Chrysler Technical Center for the formal announcement. As Zetsche stepped to the microphone, the crowd erupted in applause. He thanked them for their support and said he would miss them all when he moved back to Germany. "I am, and I always will be, a Chrysler man," he said. That afternoon he sent out a letter to Chrysler's eighty-three thousand workers urging them to stay the course under LaSorda's leadership. "We are a strong team," he wrote. "And my confidence in you could not be greater."

It was true. He did believe in the people at Chrysler. But his confidence in the company's future had already begun to waver.

Rick Wagoner and Bill Ford were homegrown leaders deeply entrenched in their companies. But Dieter Zetsche was an exotic outsider in Detroit. He was tall and bald, wore little wire-rimmed gla.s.ses, and sported a bushy, walrus-style mustache. He spoke with a thick, stern-sounding German accent but had a quick wit and a jovial way. When Zetsche came over from Germany, the mood at Chrysler couldn't have been worse. Jurgen Schrempp was never trusted in Auburn Hills, especially because the employees there believed he had used Daimler-Benz to execute a blatant takeover of Chrysler under the guise of a so-called merger of equals.

Furthermore, many Mercedes executives a.s.signed to work with Chrysler didn't bother to hide their condescending opinions of its ma.s.s-market cars and blue-collar trucks. Not Zetsche. He just rolled up his sleeves and went to work. Over time, Zetsche's warm personality slowly melted the hostility toward the Germans. "I have heard a lot about this place," he said, referring to Chrysler. "But I am a man who decides for himself."

At the same time, Zetsche didn't pull any punches. Chrysler was a perennial laggard in independent surveys on vehicle quality and reliability, and Zetsche attacked its shortcomings with a vengeance. "How s.h.i.tty this quality is!" he thundered during one internal product review. "How can we do work like this?" Instead of being offended, the Chrysler engineers and designers labored hard to please him. "Dieter was one of those rare managers who could kick your a.s.s and you didn't feel bad about it," said Vines.

With his spit-and-polish deputy, Wolfgang Bernhard, at his side, Zetsche set out to remake Chrysler's truck-heavy lineup. He added fancy station wagons and a hot little two-seat convertible, but none of them sold all that well. When Zetsche hit his home run, it was with the Chrysler 300-a muscular, statuesque rear-wheel-drive sedan with an imposing grille and a generous helping of Mercedes components.

For the merger to work in the long term, the two sides of the company needed to cooperate on products like the 300. It was never easy to get the Mercedes engineers to share anything with their Chrysler counterparts, but Zetsche proved exceptionally skillful at advancing delicate negotiations between them. Above all, Zetsche injected a sense of discipline into Chrysler, which had long been afflicted with a boom-or-bust mentality. General Motors was always the biggest and most overbearing of the Big Three. Ford had a slightly superior att.i.tude but too often felt stuck in GM's shadow and imitated its every move. Chrysler was the hyperactive youngest sibling of the three: sc.r.a.ppy and reckless, daring and creative, able to scale great heights but lacking the stability to manage its success.

And in the summer of 2005, while GM and Ford were stumbling, Chrysler was on a roll. It had just posted its eighth consecutive quarter of operating profits and was gaining market share in the United States. There was a swagger about the place that recalled its glory days of the 1980s and mid-1990s. The company had brought back its legendary chairman and pitchman, Lee Iacocca, to star in a series of television ads that paired him with celebrities such as the rapper Snoop Dogg. Auto industry a.n.a.lysts wondered whether Chrysler had found a winning formula that was eluding its larger rivals GM and Ford.

As the new head of the Chrysler Group, Zetsche took care to temper the enthusiasm that was building inside its headquarters. "We're doing okay, not great," he lectured his executives. "Our objective has to be to improve this performance." He confided to his inner circle that the company still relied far too heavily on the sale of pickups, sport-utility vehicles, and fast cars with big engines-all of which were distinctly vulnerable to a rise in fuel prices or changes in consumer tastes.

In 2005 Zetsche instructed LaSorda to begin quietly scouting for an Asian or European automaker to work with on smaller, more fuel-efficient cars. "We have got way too much riding on these trucks and SUVs," Zetsche warned him. LaSorda didn't need much convincing. At GM, no one ever spoke about Chrysler when it came to discussing the compet.i.tion. Back then, Chrysler was too small, too restricted to the North American market, and too dependent on gas-guzzling products. LaSorda felt fortunate to have the chance to take the reins as Chrysler's chief executive. But he wasn't kidding himself about its prospects. "The only way we are going to survive is to find a partner in the small-car segments," he said. "We need somebody to help us."

But it wasn't just Chrysler's inherent weaknesses that worried Zetsche. After five years in Detroit, he still could not accept the stranglehold that the United Auto Workers had on the Big Three. Germany had its own powerful automotive labor union, IG Metall, which negotiated high wages and generous benefits from DaimlerChrysler, Volkswagen, and BMW. Yet Mercedes, for example, could charge premium prices for its luxury cars to help defray the cost. And the German health care system took care of the medical bills for the union workers. Health care was what concerned Zetsche the most. The profit margins at GM, Ford, and Chrysler were so thin, it wouldn't be long before health care bills ate them up completely. Zetsche wanted to make a stand against the UAW, but he needed to do so in a united front with GM and Ford.

He had almost succeeded once. During preparations for the 2003 contract talks between the union and the three companies, Zetsche met regularly with Rick Wagoner and Bill Ford. All three executives brought along their corporate lawyers and senior labor negotiators. The meetings moved from location to location but were always in secret. At one of the sessions, Zetsche made a stunning proposal: Why didn't they join together, he asked Wagoner and Ford, and support each other in getting relief on health care? His idea was that one of the companies would go toe-to-toe with the union and slug it out over health care. Say it was Chrysler that fought the battle. If the union went on strike in response, then GM and Ford would financially support Chrysler during its shutdown. Or if GM was the strike target, then the other two companies would support it until the union backed down.

"The question is," Zetsche said, "do you have the guts to do whatever it takes to get some relief from this structural disadvantage?"

Wagoner was intrigued. Ford was reluctant. Zetsche pushed harder. Chrysler, he said, would volunteer to wage the war. "We will be the target," he said. "I am not afraid of a strike at all."

Zetsche knew what he was proposing was provocative, even revolutionary. He went even further with his proposal, suggesting that if the union struck one company, the other two should not only financially support the third but also lock workers out of their factories. "I know this is not an easy one," he said. "You pay your compet.i.tor money when he is suffering a strike for the greater good of all of you . . . that is a big move."

At one point, the three chief executives hired an outside consulting firm to investigate the legality and financial implications of a unified confrontation. And the more Zetsche talked about it, the more he sensed that Wagoner would go for it.

But Bill Ford never got on board. It all sounded too much like union-busting, and he could never be a part of that. "Let's not go too far here," he said.

To Zetsche's disappointment, the plan was shelved before it was ever tried. He attempted to revive the strategy the following year during negotiations with the Canadian Auto Workers, but it fizzled out before it got started. "My feeling was that the other two parties were not prepared for a big fight," he said. "And this would have been the mother of all fights if something like that would have happened."

As he prepared for the transition to his new job in Germany, Zetsche felt encouraged that GM was pushing hard on health care talks with the UAW. If Wagoner could get a good deal, maybe the union would give similar concessions to the rest of the Big Three. This would help Chrysler's bottom line significantly and make Zetsche's job as DaimlerChrysler's new CEO that much easier. Once he took over responsibility for all of DaimlerChrysler, he couldn't play favorites with the American side of the company. He already was preparing to make tough moves at Mercedes, where profits were shrinking and quality was slipping. And if Chrysler hit a crisis, he would have to do the same. Zetsche was sincere when he had told the cheering workers in the tech center that he would always consider himself "a Chrysler man."

But his loyalty could go only so far.

Chapter Six.

The summer of 2005 produced the best sales Detroit had seen in a long time. The success of the General Motors employee discount program forced Ford and then Chrysler to offer matching incentives, and suddenly consumers were splurging on new cars and trucks that just a few months earlier had been sitting unwanted on dealer lots. It was all about the deal. Once the American automakers poured on the rebates, the customers came in droves.

But the surge all came to a screeching halt in late August when Hurricane Katrina ravaged the Gulf Coast. In the areas affected by the hurricane, crude oil production shut down and gas prices soared to over $3 a gallon. Almost overnight, showroom traffic dried up and sales of sport-utilities and pickups crashed. GM's sales dropped 24 percent in September; Ford's fell 20 percent. It was scary how quickly Americans turned their backs on large trucks and SUVs.

Meanwhile, sales of fuel-sipping sedans and gas-electric hybrids from Toyota and Honda went through the roof. The gains of the summer were wiped out. Strategy sessions inside GM got ugly as executives debated the cause and effect of the losses. The product and manufacturing guys-Bob Lutz, Gary Cowger, and the new planning chief, John Smith-squared off with the finance and research staffs. Each side blamed the other for the miserable state of the business. "We told you that if gas prices got above three bucks a gallon that the SUV market would be in serious trouble," said Paul Ballew, the company's senior market a.n.a.lyst. "We knew this was coming."

Lutz didn't want to hear any of it. He loathed how the bean counters tried to run the company with their endless charts, graphs, and reams of data. He was trying like h.e.l.l to improve GM's lackl.u.s.ter pa.s.senger cars, and he could do it a lot faster if the finance guys weren't constantly cutting his budgets and blowing money on expensive incentives. "You're accusing us of poor product planning?" he fired back at the finance staff. "Up until six f.u.c.king months ago, people were clamoring for more and more SUVs and we couldn't even keep up with demand!"

The only products keeping GM afloat were the big Suburbans and Escalades, Lutz said. He was already mad that one of his pet projects, a new line of rear-wheel-drive cars, had just been sc.r.a.pped. Now he had to be lectured by pencil pushers who couldn't tune an engine if their lives depended on it? n.o.body on the finance side had complained when GM was raking in the profits from full-size SUVs, he said. And Lutz sure didn't remember anybody predicting a hurricane.

The blowup was a revelation to a new face in the room, Steve Girsky. Girsky had been recruited over the summer by John Devine, the chief financial officer, as a "special advisor" to GM senior management, and now he was witnessing the dysfunction for the first time. He had tracked the auto industry for fourteen years as a Wall Street a.n.a.lyst, most recently as a managing director of Morgan Stanley. But Girsky had never been on the inside before, and he was getting quite an education.

Wagoner gave Girsky an open-ended a.s.signment: "Go meet everyone involved in the North American turnaround plan. Then come tell me where you think it's strong and where it's weak." Girsky jumped right in, sitting in on meetings all over the company and reaching out to dozens of executives and employees. What he found was rampant frustration and a disturbing practice of keeping bad news buried and out of sight. "n.o.body wanted to tell the CEO what they were telling me," Girsky said. "By the time it got up the channels to Rick, it kept getting ma.s.saged to where everything was fine."

He was particularly interested in the health care talks with the UAW. The GM negotiators told Wagoner that lots of progress was being made. Girsky wanted to see for himself. He set up a breakfast with d.i.c.k Shoemaker, the head of the union's GM division, whom he had known for years. As an a.n.a.lyst, Girsky had often conferred with UAW leaders and spoke at their conferences. He agreed to meet Shoemaker one morning at the Motown Coney & Grille, a squat cinder-block diner a few miles from the union's headquarters in Detroit.

It was pretty quiet when Shoemaker walked in-but not for long. Shoemaker was usually so soft-spoken that people had to strain to hear him. But the second Girsky asked him about the health care talks, he went ballistic. "He started unloading on me," Girsky said, "like there was no tomorrow." Shoemaker laid into GM on everything-its products, its people, and especially its labor relations. "You're late to the party on hybrids!" he yelled. "You're a bunch of bureaucrats. We have no relationship with you guys. You're not even talking to us!" Girsky was stunned but let him rant.

Afterward, Girsky went straight to Wagoner. "Rick, you better get engaged here, because this thing isn't going the way you think it's going," he said.

But Wagoner seemed unconcerned. He calmly told Girsky to call Gary Cowger, who was in charge of the labor talks. And when Girsky did, Cowger didn't deny that things were rough with the union. "I know there are relationship issues, but I didn't want to tell Rick," Cowger said. "I wanted to wait until they were settled."

Wait until they were settled? That seemed so typical for GM. No matter what the problem, time was always on its side. "In GM's culture, the turn is always just around the corner," Girsky said. "The product is going to be great. The market's going to get better. Just wait."

An undeniable sense of dread began to creep into General Motors and throughout the domestic industry, from the corporate offices to the union halls to the hundreds of a.s.sembly plants and parts factories and dealerships. Something ominous was unfolding. There was a pit-in-the-stomach feeling that this once-mighty juggernaut of jobs, cars, and money was cracking under its own weight-its size, ambition, and mistakes. Detroit didn't have time on its side. There was no waiting anymore.

Shoemaker's tirade at the breakfast table was symptomatic of the intense pressure building within Solidarity House, the home base for the United Auto Workers. And no one was feeling it more than Ron Gettelfinger, the sixty-one-year-old president of the UAW.

It was getting tougher for the UAW to hold on to what it had fought for in the past, and the showdown over health care was only the latest challenge to the union's tenuous grip on wages and benefits won in Detroit's better days. The latest generation of union leaders grudgingly accepted that the nonunion j.a.panese plants in the United States had a cost advantage over the Big Three factories. Contract negotiations had become marathon battles to maintain the status quo for workers. And the union's muscle was withering. In the 1970s, the UAW had boasted a membership of 1.5 million workers. Now that number had dwindled to 600,000 as people grew old and retired, better productivity reduced manpower, and Detroit closed plants in the United States and built new ones in lower-wage markets such as Mexico, China, and Eastern Europe.

And while the union could still cripple a company with strategic strikes, the financial state of the Big Three had become so fragile that a long walkout might topple one into bankruptcy. There was nothing the union feared more than GM, Ford, or Chrysler going Chapter 11. Once their $27-an-hour paychecks, pensions, and medical benefits were in the hands of a bankruptcy judge, they could be wiped out with the stroke of a pen.

When Ron Gettelfinger was elected president at the UAW's quadrennial convention in 2002, his acceptance speech stirred the emotions of an embattled union. "It is not enough for us to have a UAW card in our purse or our wallet," he said to thunderous applause. "We need to have union in our heart."

A lean, compact man with steel-framed gla.s.ses and a neatly trimmed gray mustache, Gettelfinger didn't fit the stereotype of a union boss. One of twelve children of a factory worker and raised on a farm in southern Indiana, he didn't drink, didn't smoke, and rarely swore or raised his voice. He'd gone to work as a repairman on a Ford a.s.sembly line in Louisville, Kentucky, when he was twenty years old, and from there he climbed up the UAW ladder-committeeman, head of the union local, regional director, vice president of the Ford division, and finally president.

Even when Gettelfinger made it to the top, his old buddies still called him "the Chaplain" because of his lifestyle and religious beliefs. He wasn't a pushover or a firebrand. His reaction to the car companies depended on how they treated his "brothers and sisters" in the union. "I can be as cooperative as they'll let you be, or as militant as they make you be," he told the New York Times in 2005. Above all, Gettelfinger was a shrewd negotiator who knew when to slug it out and when to cooperate. And the more he learned about GM's financial condition, the more he knew the UAW had to make drastic concessions to keep its biggest employer in business.

But Rick Wagoner was also a savvy negotiator. He had made two smart moves early in the health care talks. First, he let the union and the media know that GM would play hardball, and he suggested that GM would cut benefits if the union refused to do a deal. Behind the scenes, his lawyers were sure that the company could legally reduce health care coverage without a negotiated agreement. "The evidence is compelling it would be upheld in court," Wagoner told people in the company. "I don't think the UAW wants to test that."

But the bolder move was offering to open up GM's internal financial statements to the union. No car company had ever done that before. GM even agreed to pay for an investment banker to review the doc.u.ments and counsel the union. The union chose Lazard, one of the top Wall Street investment firms. After examining the books, the bankers gave it to Gettelfinger straight: GM was slowly choking to death on health care, debt, and pensions. The next move, they said, was up to him.

By the end of September, the union's top officials were almost done wrestling with two proposals for GM. One called for retirees to pay more for medical care and prescription drugs, cutting GM's costs by 20 percent. The other was a blockbuster, and it was Gettelfinger's idea. He wanted the company to give the union a huge sum of cash-tens of billions of dollars-and from then on it would a.s.sume full responsibility for retiree health care. Wagoner's directors had basically ordered him to cut at least $1 billion a year from the annual health care bill, and he desperately needed a firm proposal from the union before the board meeting the first week in October.

Time was ticking away, and Gettelfinger would not be rushed. In between negotiating sessions, he was fielding scores of phone calls and e-mails from retired workers begging him to protect their benefits. There were people's lives at stake, he told his team, and he wouldn't be bullied into making a bad deal. The union's legal staff was convinced that GM was bluffing on its threat to cut benefits, and spelled it out in a secret internal memorandum. "The UAW doesn't believe it's legal," the memo said.

The GM side didn't know much about the two potential union proposals. But it was extremely interested in the concept of a one-time cash payout. Internally, the company estimated its future liabilities for retiree health care at a mind-boggling $77 billion. If somehow it could get rid of that burden forever, GM had to consider it-no matter what the cost.

Every day, the company's negotiators hunkered down with their union counterparts at the UAW-GM Center for Human Resources, an imposing redbrick building behind locked gates on the Detroit River. At any minute, the GM team expected Gettelfinger or Shoemaker to come into the room with a hard offer, but neither one appeared. Nerves were starting to fray. n.o.body knew what to expect next. "It's like an Indiana Jones movie around here," complained one frazzled exec. If that was the case, the script was about to take a dramatic twist.

October 2 was a warm autumn day in New York, with temperatures in the mid-70s and the city bathed in brilliant sunshine. But high above Times Square, in the landmark Conde Nast skysc.r.a.per in midtown Manhattan, a grim gathering was under way in the offices of the law firm Skadden, Arps, Slate, Meagher & Flom. It was Sunday morning, and an emergency board meeting of the auto parts giant Delphi Corporation was in session. The ten Delphi directors around the table had exactly one item on their agenda: whether to pull the trigger on the biggest industrial bankruptcy in American history.

Spun off as a separate company from General Motors in 1999, Delphi was a t.i.tan in the global auto parts business, with $28 billion in annual sales and 185,000 employees around the world. It was also, by far, GM's biggest supplier and an integral provider of components from spark plugs to steering systems to sophisticated electronics. Delphi's operations were intricately woven into GM's manufacturing network, and twenty-four thousand of its American factory workers were former General Motors employees and card-carrying members of the UAW.

GM was in rough shape, but Delphi had it worse. Its longtime chief executive, J. T. Battenberg III, had retired under a cloud of federal accounting investigations, and its chief financial officer was forced to resign. As GM's market share crumbled, Delphi was dragged down along with it. The company was bleeding red ink, losing more than $700 million in the first six months of the year.

Three months earlier, the Delphi board hired a new chief executive it hoped could save the sinking ship. Robert S. "Steve" Miller didn't look like a provocateur who was about to shake Detroit to its very foundations. Tall, bald, with a monotone voice and a piercing stare, Steve Miller specialized in taking distressed industrial companies into and out of bankruptcy. He'd done it with Bethlehem Steel. He'd done it with the construction company Morrison Knudsen. He'd done it with the auto supplier Federal-Mogul. Now he was ready to do it with Delphi.

Miller strode into the board meeting with his bankruptcy lawyer, Jack Butler, by his side, and declared Delphi too sick to fix without radical surgery. "This company," he said, "cannot compete unless we solve the current, uncompet.i.tive labor structure we now have." For six hours he went through the litany of Delphi's woes: mounting losses, jittery suppliers, unsustainable payrolls, and the decline of its biggest customer, GM. Miller spoke in apocalyptic terms of a "tsunami sweeping through Detroit," and said if wages and pensions and health care weren't reined in, the American auto industry would collapse. "If nothing is done, it's going to take us all down," he said.

His initial meeting with the UAW to discuss wage cuts was not promising. "You do that," Gettelfinger told him, "and you can count on a strike." Now Miller saw no alternative other than to file for Chapter 11 and restructure Delphi from the bottom up. At the meeting, he told Delphi's board that changes coming in bankruptcy law necessitated a filing as soon as possible.

When the directors gave him the word, Miller said he was ready to go. "All the preparations have been taken," he said.

But then the Delphi directors blinked. They wanted more time, and instructed Miller to go back to the union and then to GM to see if something could be done short of bankruptcy. He had one week to either get big concessions from Gettelfinger or convince Rick Wagoner to throw a financial lifeline to the company. Miller nodded and closed his briefcase. He would give it a shot.

Two days later, Wagoner had to go into his own board meeting empty-handed. The union was digging in its heels, and he had no health care deal. It was too complicated and far-reaching for the company to pay off all of its retiree obligations with one big check, so they shelved the proposal. Talks with the union had shifted toward an incremental solution-higher co-pays and monthly premiums for retirees and maybe concessions from active workers as well.

But the GM directors were losing patience with Wagoner, and they let him know it. Even Wagoner's closest ally on the board, former Eastman Kodak chairman George Fisher, ripped into him. GM was scheduled to report its third-quarter earnings in two weeks, and all indications were that the numbers would be brutal. It was critical that Wagoner have a health care deal in hand by then to soften the blow of another terrible quarter.

The union was an explosive topic of discussion, but there were other threats looming. Since completing his tender offer over the summer, Kirk Kerkorian had bought another thirteen million shares of GM stock. He now owned 9.5 percent of the company-a stake worth nearly $1.8 billion-and he was itching for more. Even worse, Kerkorian indicated in a government filing that he was now interested in getting representation on the GM board.

Wagoner's office had already heard from Jerry York. He was coming in for a meeting with Wagoner on October 18-the day after the earnings announcement. What would happen with Kerkorian was anyone's guess. GM was like an empire with colonies in revolt, division in its ranks, and an unpredictable and dangerous outsider preparing a sneak attack.

In the midst of it all, Wagoner stayed stoic, organized, and deliberate. Wagoner was the protector of GM, the guardian of its power, its values, and its future. If the board needed to vent its frustration on him, so be it. If the union needed someone to attack, he could take it. All that mattered was that General Motors made it through this mess intact and able to continue its important work of building automobiles, employing people, and growing throughout the world. "We have a long-term strategy and we need to work this thing over time," he said. "n.o.body ever said this would be easy."

The question was which crisis would detonate first.

Chapter Seven.

Delphi was a powder keg ready to blow. After his board meeting in New York, Steve Miller sent a list of demands to the UAW that infuriated Ron Gettelfinger and rocked the union. Miller asked for a 60 percent reduction in wages to $10 an hour, across-the-board cuts in pensions and health care, and the right to close or sell twenty-five of its U.S. factories. Gettelfinger was so offended he refused to utter Miller's name, much less give him the satisfaction of a response.

There wasn't any help coming from General Motors either. In August, Miller told John Devine, the GM chief financial officer, that bailing out Delphi would cost the automaker as much as $12 billion. Devine turned him down flat. There was no way GM was going to cough up that kind of money-not when it was losing billions of its own and asking its retired workers to sacrifice their medical care. When Miller reiterated the request to Rick Wagoner on October 7, the answer was still an unequivocal no.

If Wagoner was the loyal defender of the status quo, Miller was the hired gun raring to blast away at its problems. "Ron Gettelfinger has a big chip on his shoulder," Miller said. "But this sense of ent.i.tlement has gone on way too long."

After GM and the union shot him down, Miller scheduled a conference call with the Delphi board. The doc.u.ments for a bankruptcy filing were ready to go. But Miller had one last detail to take care of: preparing severance packages for twenty-one Delphi executives, and setting aside $88 million for bonuses for senior managers if they stayed through the restructuring. It was common for companies heading into Chapter 11 to provide financial incentives for key executives to remain on board. But Miller was tone-deaf to how the golden parachutes and fat bonuses would look at a company sharpening its axe for blue-collar jobs and middle-cla.s.s paychecks.

On the morning of October 8, Delphi's directors called in to the corporate offices in Troy, Michigan. Miller and Rodney O'Neal, the chief operating officer, were on the line. Together they ran through the state of affairs. Delphi couldn't pay its suppliers, and some were refusing to ship any more parts. GM was unwilling to subsidize its labor costs. The UAW wouldn't even discuss concessions. One of the directors asked if there was any reasonable prospect of fixing the company out of court.

"No," Miller said flatly. "And we've run out of time."

After an hour they were done.

At five minutes after noon, Delphi transmitted an electronic Chapter 11 filing to the U.S. Bankruptcy Court in New York, claiming a.s.sets of $17 billion and liabilities of $22 billion. None of the company's extensive subsidiaries in Asia, South America, and Europe was included in the filing; only its American factories and personnel would bear the brunt of its collapse.

Miller had thrown down the gauntlet. The average Delphi worker made $54,000 a year-about twice what nonunion suppliers paid and many times more than the wage rate in a Chinese factory. The thousands of individual parts that make up a car could be produced far more cheaply in China, Poland, or Mexico than in Michigan, Indiana, or Ohio. The company didn't need to pay union workers to do business with General Motors or any other auto company. On the contrary, Delphi's customers demanded lower and lower prices, and those were possible only with inexpensive overseas labor.

"We all understand very well," Miller said a few hours after the filing, "that life is not going to continue the way it has been."

The bankruptcy floored Delphi workers. It was the weekend, and the plants were closed. Nevertheless, the employees gathered in union halls and taverns and coffee shops, hungry for information, wondering how the UAW would respond. They had known about Miller's draconian plans for cuts in pay and benefits, and most of them realized that this was the beginning of a long legal process. For years Delphi had been a major employer in the factory towns of the American Rust Belt, and the workers felt like their way of life was under attack.

"They just s.n.a.t.c.hed the American dream from thousands of people," said Don Thomas, a machine operator with twenty-nine years at a Delphi plant in Rochester, New York. News of the filing hit Solidarity House in Detroit like a declaration of war.

Gettelfinger released a statement that said: "We will vigorously use our experience, expertise and resources to protect the interests of UAW Delphi workers and retirees." He reserved his strongest language for Miller, whom he called a "greedy pig" for lining up bonuses for executives. "Once again, we see the disgusting spectacle of the people at the top taking care of themselves at the same time they are demanding extraordinary sacrifices from their hourly workers," he said.

The union's response was predictable. But General Motors seemed confused about the bankruptcy filing. GM bought $14 billion worth of parts from Delphi every year, and every a.s.sembly plant in North America needed those components on a daily basis. Moreover, the vast majority of Delphi's union workers and retirees were former GM employees from before the spin-off six years earlier. The automaker would be responsible for at least a portion of their pensions and post-retirement benefits. GM's first public statement after the filing said it expected "no immediate effect" on its business from the bankruptcy. But by early evening, the company had revised its response dramatically: "The range of GM's exposure extends from there being potentially no material financial impact . . . to approximately $11 billion on the high end."

An $11 billion hit on the bottom line? The revelation brought an immediate reaction from Wall Street. On October 10, the first day of trading after the filing, GM's stock sank 10 percent to $25 a share. Standard & Poor's, the big credit rating agency, lowered GM's debt further into junk-bond territory. All of a sudden, some auto a.n.a.lysts were suggesting that GM also consider bankruptcy.

In media interviews, Steve Miller fanned the flames of a possible GM filing. "Clearly they are headed down the same Chapter 11 path as Delphi unless there is a dramatic change in their staggering legacy labor burden," he told the Detroit News. GM executives were furious. Through an intermediary, Wagoner told Miller to "shut the h.e.l.l up." Not only was Miller stoking fear in the financial markets, he was ratcheting up the tension in GM's ongoing health care talks with the UAW.

It was up to a federal judge to restore some order. On October 11, a mob of lawyers and reporters crammed into a sixth-floor courtroom of the U.S. Bankruptcy Court in lower Manhattan for the opening hearing in the Delphi case. The s.p.a.ce was so tight that one woman fainted and security guards had to block the door to keep more people from squeezing in. Miller arrived at the courthouse in a black limousine and was surrounded by camera crews and bombarded with questions about the executive bonuses. "Without these programs, people would simply leave us and go to our compet.i.tors," he said as he was hustled into the building by his attorneys.

There were forty motions before Judge Robert D. Drain, and he granted thirty-nine. The most critical was Delphi's request to borrow $950 million from a group of banks to pay suppliers, employees, and the other costs of running the business in Chapter 11. With that done, work in the factories could go on uninterrupted while the case wound its way through the court. But the judge postponed any decision on wage cuts or plant closings. He ordered Delphi and the UAW to start negotiating and to report back to him on December 16. It was a tight deadline, but at least the war of words could die down and real, constructive negotiations could begin.

But Miller was about to throw more gasoline on the fire.

The next day, he called a press conference at Delphi's ultramodern silver-and-black headquarters building about thirty miles north of downtown Detroit. Reporters had barely sat down before he began berating them for their coverage of the executive bonuses. "None of the changes involve me," he argued. "I could be fired tomorrow with no pension, no severance, no bonus, not even a ticket home."

Then he launched into a strange a.n.a.lysis of why he had to slash the paychecks of the men and women in Delphi's factories. "We are in a market for human capital," he said. "It's supply and demand. If you pay too much for a particular cla.s.s of employee, you go broke." As if describing flesh-and-blood workers as "human capital" wasn't insensitive enough, Miller then made things worse. "Today we are paying double or triple more for hourly labor compared to what prevails in the marketplace," he said. "Paying $65 an hour for someone mowing the lawn at one of our plants is just not going to cut it in industrial America for too long."

It was a low blow. No factory worker at Delphi was actually paid $65 an hour. Miller's figure referred to calculations of the combined cost of wages, pensions, and medical benefits for a union member. And although there were UAW workers who did cut the gra.s.s at factories, the number was minuscule. Accurate figures or not, the damage was done. In a few minutes' time, Miller had managed to insult every blue-collar employee in his company. One Delphi worker in Ohio, Dawn Spencer, immediately fired off an e-mail to him. "You speak of us as though we were ignorant, robotic human a.s.sets that aren't worth the wages we're being paid," she wrote. "I take great offense to that."

Gettelfinger was livid when he heard about Miller's comments. "The approach he has taken has clearly angered the membership," he said. "But I can tell you one thing. He has definitely solidified the rank and file of our union."

Whether Miller had done so intentionally or not, he had hit the ultimate hot b.u.t.ton. For every union member who reviled his attacks on the working cla.s.s, there were just as many auto executives and midlevel managers cheering him on. Miller had unleashed emotions that had been simmering for decades in Detroit. Many corporate workers resented the union for strong-arming the auto companies on wages and benefits, and many factory workers hated the bosses who gave the orders and took home bigger paychecks. But the hostility was mostly vented behind closed doors, until Miller turned it into a public spectacle.

On the day after his press conference, Miller flew on a Learjet leased by Delphi to an industry conference at the posh Greenbrier resort in the mountains of West Virginia. He was scheduled as the keynote speaker for the three-day event, which was sponsored by the Detroit chapter of the Society of Automotive Engineers. And when he got up and preached how he was ready to whip bankrupt Delphi into fighting shape, the audience of auto execs and engineers gave him a standing ovation.

Meanwhile, at a Delphi plant in Lockport, New York, workers were printing up picket signs in preparation for a possible strike, wearing brand-new T-shirts that said MILLER'S LAWN CARE SERVICE: MOWING DOWN WAGES.

Rick Wagoner looked at the clock in his thirty-ninth-floor office high above the Detroit River. It was close to ten o'clock on Sunday night, October 16, and he had two different speeches in front of him. The next day, Wagoner had to announce GM's third-quarter earnings, and he still didn't know what he was going to say. One section of the speech was set and wouldn't change. As painful as it would be, Wagoner was prepared to report that General Motors had lost $1.6 billion in the quarter, the company's worst performance since the economic recession of the early 1990s. But he had no idea what he would say about a health care deal with the UAW.

At that moment, a couple of miles up the river at GM's human resources center, corporate negotiators and the union were still locked in a nerve-racking standoff after many long days and nights of bargaining. Earlier that day, it had appeared that Gettelfinger was ready to take a deal that made retirees pay monthly premiums for coverage and required active workers to give up a $1-an-hour wage increase in 2006 to help fund the coverage. But then the union backed off.

Was it simply last-minute gamesmanship to get better terms, or was it a real rejection? Wagoner didn't know, and now he had to be ready for either of two scenarios. One speech thanked the union for its amazing cooperation in reaching a landmark agreement that would benefit the entire domestic auto industry. The other said sorry, there was no deal-and GM would immediately have to cut off certain health care services for retirees and force active workers to pay more of their medical bills. One version announced a huge breakthrough. The other would set off a pitched battle with the UAW that would undoubtedly end up in federal court and quite possibly provoke a nationwide strike against GM.

Wagoner decided to go home for the night. As his driver navigated the darkened streets of the city on the way to the suburb of Birmingham, he silently reviewed his situation. No matter what happened at the bargaining table in the next few hours, there would be no turning back. His board of directors had insisted-no, demanded-that he do something substantial to curtail the so-called legacy costs that had been mounting for decades at GM. The health care costs were like a ball and chain that the Big Three dragged around the marketplace. General Motors had to compete for customers every day with extremely competent automobile manufacturers from Asia and Europe. Even if the legacy costs were reduced, GM's products still lagged behind Toyota's and Honda's in quality, resale value, and overall appeal. And the compet.i.tion was relentless. It was like Detroit's market share in the United States was the feeding ground for its ravenous rivals from j.a.pan. GM's share, which had hit 50 percent in its glory days in the 1960s, had plummeted to 25 percent. To make matters worse, the whole market was slumping. The Delphi debacle could not have come at a worse time. Miller was loudly proclaiming that GM was responsible for all of its legacy costs too. A strike at the parts plants could cripple GM's vehicle production, and there wasn't a whole lot Wagoner could do about it.

At home, Wagoner got an update from the negotiating team. Still no deal, but Gettelfinger was in the room and that was a good sign. Then, sometime after midnight, the phone rang again. It was over. GM had prevailed. The UAW had agreed to extraordinary concessions. Retirees would pay monthly premiums for the first time and absorb more of the cost of their trips to the doctor and their prescriptions. The active workers would forgo their $1-an-hour pay increase next year-about $2,000 per employee annually-and the money instead would go toward retiree benefits. Wagoner took a deep breath, caught a couple of hours of sleep, and then headed back downtown to break the news.