Once Upon a Car Part 4

But to move forward, Ford would have to leave a lot of loyal soldiers behind. Fields and his team proposed cutting thirty thousand hourly workers, four thousand salaried jobs, and fourteen factories in the United States and Canada. The numbers were stunning in their severity. One in four Ford employees in North America would be out of a job within five years. There was no gilding this message, and Bill Ford didn't even try. "These cuts are a painful last resort, and I'm deeply mindful of their impact," he said, his voice echoing through the dead-silent room. "They're going to affect many lives, many families, and many communities."

When Fields took the microphone, he didn't pull any punches. Ford was saddled with the costs, capacity, and staffing levels "of a company that is much larger than our sales and market share can support." There was no other choice than to cut and cut deeply. He paused to let the shock sink in with the audience of Ford people.

Then he did something GM hadn't when it dropped its restructuring bomb: he went out on a limb.

Ford's North American operations, Fields said, would be profitable again by 2008 at the latest. "That's not a prediction," he said. "That's a promise." It sounded brash and a little scripted. But at least Fields was willing to go on the record and make a commitment. Fields had been back in Dearborn only a few months, and not everybody in the room knew him. But his words meant something, and the Ford employees began applauding, tentatively at first, then louder and louder. Maybe there was something to be hopeful about.

Bill Ford caught the wave of emotion and rode it. He had been almost teary-eyed. But now he was feeling a surge of pride. "Today," he said, "we declare the resurgence of the Ford Motor Company."

But n.o.body thirty-five miles away at the hulking Ford a.s.sembly plant in Wixom, Michigan, was applauding. The plant was one of the first factories on the hit list. Built in 1957, it was among the oldest and largest automotive manufacturing sites in the country. More than six million cars had been built there over the decades, including the iconic Ford Thunderbird and Lincoln Continental. But production had been steadily dropping, and the fifteen hundred workers in Wixom had suspected the end was near.

The a.s.sembly line stopped so the workers could watch the grim news on television. While the plant wouldn't officially close for a year, their corporate lifeline had been severed. Some of the workers hung their heads when they realized that Ford Wixom had just been declared dead.

"At least we know something now," said Ron Cameron, a skilled tradesman. "We've been kind of hanging out in the wind for a while." A few workers drifted across the street on their break to commiserate at Leon's Food and Spirits, a local restaurant. One of the workers, Venessa Seldon, got a frantic phone call from her teenage daughter. "She called from school and said, 'Mom, are we broke?'" Seldon told a reporter from the Detroit News. "I told her that we'll be okay."

A sense of the inevitable was taking hold in Detroit. Unlike the anger and frustration detonated by the Delphi bankruptcy and the GM cuts, Ford's downsizing was accepted by workers with a measure of resignation; this had been coming, and they knew it.

Even Ron Gettelfinger's reaction was muted. "This is extremely disappointing," he said. "It's devastating news for workers and their families." But there was no talk of a fight or a strike or anything like that. The reckoning that had been predicted for years had arrived. This was the new look of twenty-first-century Detroit: plants closings, jobs lost, cities abandoned. The scary part was that no one seemed surprised anymore.

But maybe there was one ray of hope. That same afternoon, the newest Big Three chief executive made his public debut as the keynote speaker to the Detroit Economic Club. Tom LaSorda's timing could not have been better to a.s.sume the role of CEO of the Chrysler Group. The company was profitable and had already gone through a brutal round of plant closings and layoffs after Daimler-Benz acquired it in 1998. With a wealthy parent company behind it and a solid balance sheet, Chrysler now appeared to be the healthiest car company in Detroit.

Chrysler shouldn't even be lumped in with General Motors and Ford, LaSorda declared. The smallest of the Big Three had risen above its larger hometown compet.i.tors and all of their messy problems. "We are competing with Toyota and the Asian imports," La-Sorda said. He almost sounded as if he pitied poor GM and Ford. "At the Chrysler Group, we take no joy whatsoever in what's happening at our crosstown rivals," he said. "We went through similar agonies during our restructuring just a few years ago." But those days were all behind Chrysler now, he swore. Its destiny was to match the best compet.i.tors in the world-not slog along with the other two dinosaurs from Detroit.

This was heady stuff coming from a company with some of the poorest quality in the industry and a checkered past that included an unprecedented bailout by the U.S. government in 1980. But Chrysler did seem to be on a roll. During the Detroit auto show, it promised a blitz of new products: a compact Jeep, a small Dodge wagon, and a gaudy, chrome-laden, seven-pa.s.senger Chrysler SUV. It even showed off a retro-styled muscle car, the Challenger. The heavy accent on powerful engines was cla.s.sic Chrysler but not exactly where the market seemed to be headed. And despite his experience in the factories, LaSorda was still decidedly unknown as a leader.

But at DaimlerChrysler headquarters in Stuttgart, Dieter Zetsche was worried. Zetsche had his hands full as the new chief executive of DaimlerChrysler, and his first order of business was to streamline the company and eliminate multiple layers of bureaucracy. On the day after Ford announced its restructuring, DaimlerChrysler said it would slash 20 percent of its administrative staff worldwide over the next three years, cutting as many as six thousand jobs. It was one of the biggest head-count reductions ever in a German corporation and served notice that Zetsche would play no favorites in whipping DaimlerChrysler into shape. Even Mercedes-Benz, the crown jewel of the company, was under intense pressure to improve its quality and defend its turf against an onslaught of new products from Toyota's Lexus luxury division.

Zetsche was also looking at Chrysler in a very different light. When he had run the American operation, he felt Chrysler had the potential to be a solid, long-term contributor to the overall success of the parent company. Now he wasn't so sure. Chrysler did have some very profitable products, particularly its pickup trucks and sport-utility vehicles. And Zetsche definitely saw opportunities for Chrysler to benefit from joint programs with Mercedes-Benz.

Most of the senior German executives had little use for Chrysler's blue-collar trucks and SUVs and its limited geographic distribution in North America. Not Zetsche. He was pushing the Mercedes engineers hard to work with Chrysler on a common cha.s.sis and components for the next generation of Jeep Grand Cherokee and Mercedes M-cla.s.s sport-utilities. Zetsche had always believed that Chrysler had a promising place in the DaimlerChrysler universe-until he began seriously examining the possible downside of being forever wedded to the American auto industry.

Zetsche was a methodical man, and he spent many hours secluded in his new office in Stuttgart working his way through the finances, product programs, and organizational charts of DaimlerChrysler, an industrial behemoth with more than 380,000 employees around the world. Where were the strengths and, more important, the weaknesses?

The deeper he dug, the more he fixated on the spiraling health care costs of Chrysler's union workers and retirees and the long-term liabilities of its pension obligations. When he was working in Detroit, he'd accepted those burdens as a fact of life. After all, General Motors and Ford were stuck with them too. That's why he had lobbied Rick Wagoner and Bill Ford so vigorously to join him and take on the UAW. But now that Zetsche was responsible for the whole of DaimlerChrysler, he got a sick feeling whenever he looked at those legacy costs. His corporate attorneys confirmed what he feared most. "There are no firewalls whatsoever," he was told. "Any risk that Chrysler is facing is at the same time a risk for Daimler-Chrysler." Overall, Chrysler's health care and pension liabilities could run as high as $20 billion. Those costs weren't just Chrysler's problem-they were DaimlerChrysler's. "And there is no way to stop the liability," Zetsche concluded.

If Chrysler functioned perfectly, Zetsche figured, it could earn a reasonable return on sales and make decent profits. But if it struggled, if its sales plunged in a recession or a fuel crisis, costs would overwhelm revenues. And if that happened, Chrysler had the potential to bring down one of the greatest industrial companies in German history. Zetsche could not risk that, no matter how he felt personally about Chrysler and its people. He called in two of the key members of the DaimlerChrysler management team-Bodo Uebber, the chief financial officer, and Rudiger Grube, the head of corporate strategy.

This would be a tight, confidential circle. Only the three of them, with a handful of trusted subordinates, would be privy to their discussions. Absolutely nothing could leak out, Zetsche warned Uebber and Grube. He wouldn't reveal their plans to Tom LaSorda for months. Even the DaimlerChrysler supervisory board wouldn't be informed until it needed to be.

Zetsche had made up his mind: Chrysler would be put up for sale. Not immediately, and not until every possible angle had been studied and every potential buyer had been scrutinized. But there was no turning back. "For me, the future is clear," he told his colleagues. "It is very clear that there is only one way to go forward. From now on, we are preparing in this direction."

Chapter Ten.

The snow began falling just after dark on February 4, 2006, big, fluffy flakes like white frosting on the huge party that had taken over downtown Detroit. If a city ever needed a break from bad times, Super Bowl XL was the ultimate distraction. The downtown business district, so desolate on a Sat.u.r.day night in the dead of winter, had been turned into a frozen Mardi Gras of nightclubs and outdoor concerts and party tents. Everything was lit up and sparkling in the frigid night air. A twenty-story-tall "XL" sign glowed from atop the GM Renaissance Center, while down below, tens of thousands of people roamed the streets drinking, eating, and celebrating on the night before the biggest sporting event in America.

It was like a slightly surreal amus.e.m.e.nt park had been set up for the weekend, with ice sculptures, food courts, and a glistening two-hundred-foot-long snow slide in the middle of it all. Crowds jammed the sidewalks and stretch limos cruised up and down Woodward Avenue, where empty storefronts had been transformed overnight into bars, restaurants, and souvenir shops.

The Super Bowl was typically played in some sun-splashed vacation spot such as Miami or New Orleans. But this year, the Big Game had landed in blue-collar, hard-knocks Detroit, home of the beleaguered Big Three automakers. The city had prepared for this moment for months, and it showed. Abandoned buildings were scrubbed clean and fixed up with new windows and fake marble siding. Streets and alleyways were miraculously rid of graffiti and garbage. Giant murals of GM cars covered the office towers overlooking party central, the Motown Winter Blast-a frosty carnival of ethnic food, live bands, and bundled-up revelers skating, s...o...b..arding, and riding in vintage Model Ts through the fresh snow.

n.o.body had done more to bring the Super Bowl to town than Bill Ford and his father, William Clay Ford Sr., the longtime owner of the Detroit Lions. Six years earlier, the National Football League had promised the Fords its championship game if a new indoor stadium was built and ready to go. Now Ford Field-a sixty-five-thousand-seat, $500 million brick-and-gla.s.s edifice in the heart of downtown-was playing host the next day to the Pittsburgh Steelers and Seattle Seahawks.

Much more than a football game was at stake. This was downtrodden Detroit's shot to shine under the brightest of lights. The high rollers, corporate sponsors, and news media had descended on one of the most economically depressed places in the country, expecting the worst. But the city and the auto industry had risen to the occasion. More than $100 million in public and private money had been raised to spruce up the aged downtown and stage hundreds of events. The biggest donations had come from the car companies, especially Ford.

It was the night before the game, and every venue in the city was jumping with concerts and high-priced parties hosted by rappers, athletes, and swimsuit models. But the hottest ticket in the car business was to Groove Detroit, the charity gala headlined by Bill Ford and his wife, Lisa. Bill's weekend was a blur of press conferences, NFL events, and last-minute preparations at Ford Field. At the Groove Detroit party at the Ford conference center in Dearborn, a crush of guests crowded around, hanging on his every word. "We should all feel incredibly proud," he told them. "This shows what we're capable of here."

Securing the Super Bowl was a personal triumph for Bill Ford as a civic leader and as a deeply loyal Detroiter. The NFL, big advertisers, and network executives had all paid homage to Detroit and its still-enormous economic impact and billion-dollar ad budgets. The only downer was the steady media coverage of the urban blight and decay, looming job cuts, and plant closings. More and more the question was, which auto giant would crash and burn first-GM or Ford?

On Super Bowl Sunday, Bill watched the Steelers defeat the Seahawks 2110 with his dad, his wife and kids, and other Ford family members in the owners' suite high above the field. After the game, downtown was like New Year's Eve as hordes of football fans poured out of the stadium and the bars and onto the wintry streets of Detroit. Bill didn't leave until very late, soaking up the moment. He had helped pull the city out of its gloom, if only for one glorious weekend. And all he kept thinking was, could he do the same thing for the Ford Motor Company?

Ever since the Way Forward announcement two weeks earlier, he had been inundated with e-mails and calls from employees in Ford's factories, engineering labs, and design centers. Many were worried sick. Some expressed support and their confidence in him. Others raised questions he still couldn't answer: Which jobs would be cut? Was health care in jeopardy? Could he possibly keep their plant open? Was Ford going to make it?

"People are spending too much time gossiping and worrying and asking each other, 'What's going on?'" he said in meetings with his executives. "These people are the backbone of the company. They're not sure they are valued, or where they fit in."

No other auto executive had the kind of relationship Bill Ford had with the rank-and-file workers. He'd grown up in the company and personally knew hundreds of its employees, past and present; he had been through so much with these people, life-and-death moments ingrained in his psyche. Seven years earlier, on a raw and rainy Monday afternoon in February 1999, a huge explosion rocked the Rouge a.s.sembly plant, killing six Ford workers and injuring thirty others. When Bill-who was non-executive chairman at the time-got the news, his first and only instinct was to rush immediately to the plant, just a few miles from Ford headquarters.

Some panicky executives urged him to wait until the chaos subsided. When he heard somebody in the room say that "generals don't go to the front lines," he blew up. "Then bust me down to buck private, because I'm going!" he snapped, and took off.

When he got to the Rouge, the powerhouse building was engulfed in flames and billowing black smoke. Fire crews were swarming the scene, and rescue workers were already carrying badly burned workers to wailing ambulances. Bill almost lost it when he saw the horrific condition of the victims. "My G.o.d, this is so awful," he said to an aide, Niel Golightly, as he fought back tears. "What can we do to help?"

He found cl.u.s.ters of employees and family members in shock and stayed with them until they were evacuated. Then he went to the University of Michigan hospital in Ann Arbor, a short distance from his own home, and stood vigil for the injured workers. "You seem to be holding it together for me, and I'm trying to hold it together for you," he said to the families. That night on national television, his ashen, exhausted face brought home the sorrow and pain of the deadliest day in Ford history. "This," he said, choking up on camera, "is the worst day of my life."

The next morning, when Bill parked his car in the underground garage at the Gla.s.s House, the mechanics dropped their tools and hugged him. And as he walked through the lobby, employees applauded and cheered and cried just at the sight of him. When he turned on the computer in his office, it was flooded with e-mails expressing grat.i.tude for his compa.s.sion and caring.

"I worked in the Rouge for forty-two years," wrote one retired worker, "and I was never more proud to have been a Ford employee than when I saw what you did."

Bill Ford was more than the chairman and chief executive of the Ford Motor Company. He was the patriarch of one of the last great industrial dynasties in America. It was his family's name inscribed on the iconic Blue Oval on the hoods of millions of Mustangs and Explorers and F-series pickups. People in the auto industry had a lot of opinions about Bill. He was too privileged, too idealistic, and too emotional to run a mega-manufacturer with hundreds of thousands of employees and $160 billion in annual revenues. Was he smart enough, talented enough, and tough enough to turn it around? Bill himself had doubts on all three counts.

Inside Ford, even some of his own executives wondered if he was in over his head. Yet what they all underestimated was his devotion to the company and its employees. Bill would never give up. Even with all its problems, Ford would be a very attractive acquisition for a foreign automaker or a big private equity fund on Wall Street. That didn't matter. He wouldn't consider selling out at any price. Ford was not just a job to him or an investment or even a birthright. It was a calling, a mission, a trust.

And he knew in his gut that the Way Forward plan was not enough to save Ford. Eliminating jobs and factories only cut costs. What Ford desperately needed was a complete makeover of its tired, uncompet.i.tive product lineup. Its mainstream cars were safe but dull, and its fleet of big trucks and rugged SUVs had fallen out of step with the times. Ford had plenty of talented engineers and designers. But it needed more money and motivation to carry out a sweeping transition to leaner, more fuel-efficient cars that might actually excite people. Budgets were already tight. Ford was using up its cash reserves, millions of dollars a day, to fund daily operations. And the company's finance staff-particularly its hard-nosed chief, Don Leclair-was painting an increasingly grim picture for Bill Ford and the board of directors. Consumer spending was slipping, Ford's market share was shrinking, and it faced several billion dollars in charges to close unneeded plants and buy out workers. At its current rate of spending, Ford was in danger of exhausting its cash h.o.a.rd within three years or less. And then what would happen?

And huge new expenses were looming. Word was that GM was deep in negotiations with the United Auto Workers about offering lucrative buyouts to every worker in the company to get them to leave voluntarily. A similar program at Ford would cost billions and further drain its dwindling bank account.

In closed-door meetings with his board of directors, Bill Ford was brutally honest. "We are up against it," he said. "We can no longer count on trucks and SUVs to carry us. The consumer is tapped out. That's what scares me the most."

In times of crisis, the inner circle tightened at Ford and secrecy became paramount. Leclair and his lieutenants prepared a confidential memorandum for Bill Ford, which he shared first with the board, a heavyweight group of outside corporate executives and policy makers led by former U.S. Treasury secretary Robert Rubin and retired Goldman Sachs chief executive John Thornton. The memo suggested a very risky option that involved borrowing an extraordinary amount of money to fund a wholesale shift from trucks to smaller, better cars. The finance team believed Ford could arrange up to $20 billion in loans from the nation's biggest banks if-and it was a big if-the company was willing to pledge everything it owned, from the factories to the brands to the Gla.s.s House itself, as collateral. No automaker in Detroit or anywhere else had ever mortgaged all of its a.s.sets, even its trademarks and patents, to raise capital. The interest payments would be enormous, enough to sink the entire business if the turnaround didn't take hold. This was a bet-the-company move-and Bill Ford was willing to do it.

Besides the Ford directors, the only other person he confided in was Ron Gettelfinger. He called the UAW president directly at Solidarity House in Detroit and invited him to coffee. When they sat down, Bill opened up.

"This is what we're going to have to do," he said. "Bear with me. I know people will say we're crazy for mortgaging the Blue Oval. But this is our best chance to get this thing turned around."

Gettelfinger just listened. He was immediately skeptical of putting Ford in hock to the Wall Street bankers. But he knew the Ford family and the board would never even consider it if the situation wasn't dire. He had eighty-seven thousand active union members at Ford, and at least one-fourth of them would be losing their jobs in the Way Forward plan. He was seething about Delphi, and in the past sixty days GM and Ford had already announced they were eliminating the jobs of sixty thousand hardworking UAW men and women. GM's new chief financial officer, Fritz Henderson, was telling Gettelfinger that buyout packages worth $100,000 per worker or more would be forthcoming if the union didn't fight the plant closings. The union chief knew that Ford would need more money if it was going to follow the same path.

This was not how the union president usually interacted with one of the Big Three, but Ford was different. Ford's top labor executives, with Bill's blessing, had just started a series of unusual meetings with union leaders, called Action America-frank talks about how Ford and the UAW could jointly come to grips with the mounting problems of the domestic auto industry. Now Bill was sharing highly sensitive, strategic information, and Gettelfinger appreciated that. He never met one-on-one like this with Rick Wagoner. Contact between the UAW and General Motors was always formal and hierarchical and charged with tension, like two superpowers negotiating treaties with dozens of people in the room. Gettelfinger didn't trust GM or the Germans overseeing Chrysler. But Ford wasn't hiding anything. On the contrary, Bill was baring his soul. He needed the union on board, to support Ford rather than fight it.

Gettelfinger didn't need much convincing. He genuinely liked Bill, and he loved the Ford Motor Company. He had also grown up with the company, but on the a.s.sembly line in Louisville. He was a good twenty years older than Bill and had been raised dirt poor on an Indiana farm, a long way from the immense wealth and power that Bill Ford was born into. But he shared a bond with Bill that he would never have with anyone at GM or Chrysler. There was a sense of kinship that transcended the strict adversarial boundaries between labor and management. And he would never, ever forget that Bill had gone to the accident scene at the Rouge, and what his presence meant to the Ford workers and their families. That act alone cemented Gettelfinger's respect for him forever. If Bill truly believed that borrowing $20 billion was going to help fix Ford, Gettelfinger wouldn't hesitate to support it.

"I believe you're going to do what's right for Ford and for the workers," he told Bill. "We're counting on you to do what's right."

It was a big relief for Bill to hear that. He valued a strong relationship with the union and the workers above almost anything. But the pressure on Bill was relentless. His insomnia got worse, and the stress started to show. When he came into work in the morning, he already had dark circles under his eyes. Bill thrived on sports and exercise-martial arts, playing hockey with his buddies at local rinks, skiing or fly-fishing at his second home out in Colorado. But he had basically given up on all of it, including much of his family time with his wife and four children.

More and more, Bill lived out of his gla.s.sed-in office at the end of a secured floor atop Ford headquarters, with two secretaries to handle his calls and a never-ending line of executives and visitors waiting to see him. The layers around him were thickening like insulation. Out of the blue, he had hired his brother-in-law and close friend, Steve Hamp, to be his chief of staff at Ford and maintain his schedule, which did not sit well with Fields, Leclair, and every other senior executive who was used to dealing with him directly.

Of all his executives, Bill was meeting most frequently in private with Joe Laymon, Ford's head of human resources. Laymon was the chess master for every personnel decision in the company, and Bill had entrusted him with the most delicate of a.s.signments-to find his replacement as chief executive officer. After one board meeting, he called Laymon to his office to brainstorm. Laymon had been working hard for more than a year to lure a hot foreign auto exec to Ford. Carlos Ghosn of Renault-Nissan and Dieter Zetsche of DaimlerChrysler had both turned him down. He'd pursued Wolfgang Bernhard, Zetsche's right-hand man at Chrysler, but Bernhard wasn't interested either. And why would they be? Their companies were profitable and growing, while Ford was in a downward spiral. Plus, none of the foreign execs wanted to be beholden to Bill and the extended Ford family and their 40 percent voting bloc of company stock.

Unfortunately, details of the secret search were beginning to leak out. Newspapers were quoting anonymous sources that Ford had offered the CEO job to Ghosn a year earlier and been rejected. Ford's public relations staffers declined any comment and downplayed the stories. Still, the rumor in the industry was that Ford was desperate and groping for a savior, but the really successful automotive executives wanted nothing to do with it.

Bill told Laymon that they had to be extremely careful before approaching anyone else. "The chance of rejection is going to be very high," he said. "The first contact we make is so important. We can't let anybody know about it."

Then he said that John Thornton had just given him a name at the board meeting. A mutual friend of theirs, former congressman Richard Gephardt, had recently mediated an ugly labor strike by the national machinists union against Boeing, the aircraft manufacturer. Gephardt couldn't stop praising the Boeing executive who'd handled the delicate, final negotiations with the union and settled the three-week strike. Thornton wondered if this was someone whom Ford might be interested in.

Bill was shuffling through notes at his conference table when he brought it up to Laymon.

"So do you know anything about Alan Mulally at Boeing?" Bill asked him. "I'm hearing rave reviews about this guy from Thornton and Gephardt."

Laymon thought for a minute. He had an encyclopedic knowledge of potential chief executive candidates, both inside the auto industry and out. But he had to admit he was not familiar with Alan Mulally, the sixty-one-year-old president of Boeing's commercial airplanes division.

"I've heard of him," Laymon said, "but nothing about him."

Now Bill was intrigued.

"Okay, can you do some due diligence on him?" he said. "Just read everything and see what you can come up with."

Chapter Eleven.

Steve Girsky took a deep breath and looked out at the forty General Motors executives seated in front of him. This was not going to be easy. For the past six months, Girsky had been embedded inside GM-listening, watching, and methodically a.n.a.lyzing the corporation. Now he was ready to unload. He had made countless presentations to investors about the automaker during his years as a Wall Street a.n.a.lyst. But this was a unique opportunity to critique the company directly to its senior management. Girsky was determined to lay out the cold, hard facts and to challenge the leadership team to see GM as outsiders did: a deeply flawed, failing company that needed drastic changes to survive. It took guts to lecture these people. Girsky was neither an engineer, a marketing expert, nor a manufacturing specialist. But unlike the executives, he wasn't blinded by GM's immense size, its history, or the underlying sense of ent.i.tlement that coursed through the bureaucracies of Detroit's Big Three.

Born in Queens, New York, and raised in Los Angeles, Girsky was the son of a self-made electronics wholesaler. After graduating from UCLA and Harvard Business School, he found his niche as a prolific research a.n.a.lyst in the investment banking world. Joining GM as an advisor was the first job he'd ever had outside Wall Street. Short and balding, with close-cropped sandy hair and wire-rimmed gla.s.ses, Girsky liked to joke that he was the only "wise-a.s.s New York Jew" ever allowed into the inner sanctums at GM.

The talk was aptly t.i.tled "An Outside View from Inside the Company." Girsky started on a semipositive note before getting down to the ugly truth. "We are not the first car company to face an extremely difficult situation," Girsky said. "Others have successfully rebounded. But we are unlikely to rebound with a business-as-usual approach. And this is likely to make a lot of people uncomfortable."

In his estimation, General Motors was worse off in 2006 than when it had hit bottom in the early 1990s. It sold more vehicles in a much larger market, yet it was losing considerably more money. Out of 107 vehicles the company produced in North America alone, 71 were unprofitable-a staggering two-thirds of the lineup. The bond market rated GM's credit as junk, and the stock market displayed minimal confidence in the company's prospects. Wall Street, Girsky said, simply didn't trust management anymore. "They do not understand our plan, they do not believe our plan goes far enough, and they lack confidence in our ability to execute it," he said. "This suggests we have a communication problem, a strategy problem, and a management credibility problem."

Now he had the room's attention big-time. Girsky sensed the tension but plowed on. "This lack of confidence has significant negative implications for our business," he said. The big banks would never lend money to GM again without collateral or expensive covenants. Wall Street didn't believe the company could break even, much less become solidly profitable, without ma.s.sive alterations. What's more, investors were paying more attention to what Jerry York and Steve Miller were saying about GM than they were to what its own senior executives were saying.

Now Girsky was really crossing the line. York and Miller were considered bomb throwers, the ant.i.thesis of the slow-but-steady, responsible GM regime. But Girsky was intent on stirring the pot. "What would Jerry do?" he said. "He'd be aggressive. He'd sell a.s.sets and reduce staff. What would Steve do? He sees bankruptcy as a way to clean out the legacy costs and the uncompet.i.tive labor practices."

GM had run out of excuses, he said. Investors had lost all patience. The company desperately needed to "step out of the box"-to show the doubters that management appreciated how grave the situation was. What would grab their attention? They needed to focus their spending on fewer but better products. Slash more production capacity and employees. Set hard targets and be accountable for them. And above all, acknowledge that GM was in serious trouble. "Do our actions suggest we are serious?" he asked. "Are we acting like our jobs are on the line? Will we put our jobs on the line for nonperformance?"

The questions hung in the air. n.o.body contradicted him or told him he was way off base. A couple of executives glared at him, as though they couldn't fathom his lack of decorum. There was an awkward silence until Wagoner thanked Girsky for his presentation and the meeting moved on to other topics. It was sort of embarra.s.sing how little reaction he got. "What was fascinating to me was how politically incorrect it was to say these things out loud," Girsky reflected later. "I felt like a hit man, and I didn't want to be a hit man."

He didn't know it at the time, but some of the executives appreciated his candor. Wagoner, for one, recognized the value of having a respected outsider deliver a reality check. It wasn't Wagoner's style to run roughshod over people. He preferred a more collegial approach. But Wagoner was well aware that GM was suffering from a major credibility problem. And he was trying, in his own polite way, to instill a sense of urgency in the organization.

It wasn't taking hold, however. Responsibility and accountability were diffuse at GM. Rarely was anyone fired for failure. In most cases, an underperforming executive was moved to another position or gently eased into retirement. Did people act like their jobs were on the line? Not really. Girsky had found that very few senior managers at GM were held personally accountable for profits or losses in their divisions. And virtually every major decision on product programs, capital expenditures, or marketing initiatives was made by a committee. GM was a collective, where rank and power were defined by where an executive fit into its complicated hierarchy. There was no incentive to be entrepreneurial. On the contrary, managers succeeded by swimming with the current rather than against it.

It wasn't Rick Wagoner's fault; General Motors had prized conformity long before he became chief executive. For years, people inside the company referred to "the GM nod"-a reference to how a roomful of managers and executives would all nod in unison to approve a new car or a plant expansion.

Unfortunately, many executives already believed they had broken out of the old GM mold. In some ways, it was relative: compared to the past, the company was indeed moving at "lightning speed" (Wagoner's favorite expression). But the compet.i.tion was blowing past GM in terms of innovation, especially on fuel economy. For example, for several years GM had had the technical capability to build gas-electric hybrids. But it was just now introducing its first model. Toyota, by contrast, would sell nearly two hundred thousand hybrids in the coming year.

When reporters questioned why GM lagged behind on hybrids, Bob Lutz argued that those vehicles would never make money. But GM's own internal research showed that consumers were growing concerned about gas prices and gravitating toward smaller, more fuel-efficient vehicles. Girsky had nailed it. General Motors, the most dominant automaker in American history, had become a puzzling underachiever. Even so, its leaders were convinced the company was on the right path and taking bold, creative steps forward. "There's no naivete going on in this place at all," said Mark LaNeve, the top sales and marketing exec in North America. "A legitimate criticism of GM in the past was that it was not critical of itself. But now we believe in honest discussion, and I'm thrilled by the fact that we're facing the brutal facts." He went on to point out, "Don't forget that we're going to sell more than nine million vehicles this year. We must be doing something right."

Facing the facts? Maybe. But accepting that the company was teetering on disaster? GM's corporate ego could take only so much.

As work crews dismantled the temporary bars and attractions downtown after Super Bowl Sunday, Rick Wagoner called to order the monthly meeting of the GM board of directors at the Renaissance Center. The agenda was a corporate crisis in capsule form: talks with the UAW on worker buyouts and plant closings, plans to sell the giant GMAC finance division, decisions on freezing pensions and health care for thousands of salaried employees.

Wagoner presided at the head of an enormous rectangular table with a spectacular thirty-ninth-floor view of the Detroit River and the tree-lined sh.o.r.es of Windsor, Ontario. Seated around him were the company's outside directors-eight men and two women who probably could walk into any GM facility in the country and never be recognized. Half of them had served on the board for a decade or longer. Six were retired chief executives or chairmen of large corporations or, in one case, a major accounting firm. Both of the women, Ellen Kullman of DuPont and Karen Katen of Pfizer, were active executives of publicly traded companies. There was one private businessman, Armando Codina, who headed a big real estate development firm in Florida, and one Washington political figure, Erskine Bowles, a former chief of staff in Clinton's White House.

Today they were going to add a new member: Jerry York. Two of the senior directors, George Fisher and John Bryan, had been deputized to meet with York and negotiate the terms of how he would represent Kirk Kerkorian on the board. The discussions were amicable, given the circ.u.mstances.

Though it was not unusual for a major shareholder to seek board representation in a public company, there was no precedent for this at GM. Kerkorian had maneuvered Wagoner and the board into a very tight corner: either bring York in as a director or risk a messy confrontation with a big investor who owned 10 percent of the company. The conversations between Bryan, Fisher, and York were about ground rules and expectations, and York had played the game very professionally.

"Look, fellows, I'm a big boy," he told Bryan and Fisher. "I know as a board member I get one vote just like everybody else. I've got some things on my mind, and I'll share them just like any other board member."

Kerkorian's personal attorney, Terry Christensen, had also talked through issues related to York with the two GM directors. All sides agreed that once York became a board member, he would be prohibited from sharing any inside information with Kerkorian. But beyond that, he could be as proactive and engaged as he chose to be.

Bryan, the retired chairman of the Sara Lee food company, suspected York had one sole objective: to increase the value of Kerkorian's investment. "We thought from the beginning that his motives were nothing more than to help his buddy make money," Bryan said. "It was not the kind of thing that seemed all that attractive to folks on the board." Yet when the directors voted, York was elected without any dissent. And once they voted him in, the board validated the appointment by approving several initiatives that York had brought up in his "fork in the road" speech a month earlier.

First, the board reduced GM's quarterly dividend to shareholders from 50 to 25 per share. Then they cut Wagoner's $2.2 million annual salary-as well as their own compensations-in half. They also slashed the pay of other senior executives such as Lutz by 30 percent, and tightened the corporation's contribution to the health care plans of white-collar workers.

By all appearances, York was already making a major impact in the boardroom before he even set foot in it. While the board was meeting, York was walking the snow-covered grounds of rural Oakland Township, about sixty miles north of Detroit, supervising the construction of his new home. The project was vintage York. He was building an exact replica of his eighteenth-century Connecticut farmhouse on forty-four acres of dense woods teeming with deer and wild turkeys. Every spec was identical to his former house, from the size and cut of the virgin pine floorboards to the antique moldings adorning its seven fireplaces. York was busy making notes for his contractor when his cell phone rang. It was George Fisher, who held the t.i.tle of lead director on the GM board.

"Jerry, it's George Fisher," he said. "Well, we took our vote and you're on the board."

York thought this was all very strange. Usually a prospective board member would be ready and waiting outside the room while directors voted. "If the vote was thumbs up, then the new director would be invited into the meeting and told, 'Welcome aboard, welcome to the team,'" York said later. "But I guess that's not the GM way."

"So the meeting is already over?" York asked Fisher.

"Yes, we're done," Fisher said. "We'll see you at the next meeting in March."

York thanked him and hung up. Then he dialed Kerkorian's number in L.A.

"Hey, Kirk," he said. "We're in."

Two days later, Fortune magazine hit the newsstands with a stark, all-black cover and a grim story t.i.tled "The Tragedy of General Motors." The lengthy article was decidedly pessimistic about GM's ultimate fate. "The company remains so central to the economy, so sprawling in its reach, that going into Chapter 11 would be ominous almost beyond contemplation," it said. "And yet the evidence points, with increasing cert.i.tude, to bankruptcy." The exposure was another blow to GM's faltering image. Mainstream newspapers had already been covering the company's troubles exhaustively. But Fortune was the conservative pillar of business journalism and a must-read for corporate executives and investors all over the world. GM had opened its doors to the magazine in hopes of getting a boost in public opinion. Instead, its bleak a.n.a.lysis read like an obituary.

Bob Lutz was one of the senior executives who had given interviews to the author, the magazine's veteran editor at large Carol Loomis. He was not pleased. "We took that kindly old lady from Fortune all the way through the plan, showed her all the new products, and told her why we're not going bankrupt," he complained to a visitor in his wood-paneled office at the GM Technical Center. "I honestly thought we had some impact on her, and she goes and writes that story anyway!"