Once Upon a Car Part 7

Chapter Fifteen.

The drama at General Motors had all the twists and turns of a Hollywood cliffhanger. At Ford, the descent was more of a slow, torturous slide into mediocrity. Sales dropped consistently, month after month, to the point where Toyota pa.s.sed it in July as number two in the U.S. market. The red ink kept flowing too-not as fast as at GM, but just as predictably and with no end in sight. In the first half of 2006, Ford had lost $1.4 billion. Its plans to shed workers and factories seemed like deja vu; whatever buyouts GM offered, Ford was destined to follow.

Inside Ford headquarters, a revolving cast of inbred executives kept churning out the same lackl.u.s.ter results. Even Bill Ford had lost some of his aura. Hailed as the one Detroit exec with an environmental consciousness, he had to back off his pledge that Ford would build a quarter million hybrid vehicles a year by the end of the decade. Now he was embarra.s.sed to admit it wouldn't even sell twenty-five thousand in 2006.

The famous Blue Oval had come to define bland, predictable, and slightly above- or below-average vehicles. Ford had two popular pa.s.senger cars on the market: the iconic Mustang and the new midsize Fusion sedan. But besides those, its only reliable sellers were the venerable F-series pickup and an over-the-hill lineup of boxy, low-mileage sport-utility vehicles. The company's high-priced foreign brands-Jaguar, Volvo, Land Rover, and Aston Martin-could barely dent the dominance of Lexus, Mercedes-Benz, and BMW. "Is Ford Running on Empty?" asked a headline in the New York Times. There was no reason to believe otherwise.

Bill Ford's burden grew by the day. His president and chief operating officer, Jim Padilla, had proven ineffective and was forced into retirement on July 1. Bill was left with a thin roster of promising but inexperienced executives. To harness their talent, he formed an operating committee that he had to chair himself (in addition to his duties as chairman of the board and chief executive officer). He tried to pump up his people, organizing offsite retreats to build camaraderie and generate new ideas. But he couldn't defuse the escalating conflict between two of his key players: Mark Fields, the hard-driving head of the Americas division, and Don Leclair, the ultraintense chief financial officer.

The Fields-Leclair feud was dividing the leadership team. They fought incessantly over money and control. At one strategy session, Leclair tore into Fields for overspending on new vehicle programs. "You have got to cut the product plan!" Leclair snapped. "We're going out of business here. Don't you understand we're going to go bankrupt if we don't do this?"

Fields barked right back at him. Didn't Leclair understand that Ford had to pour all the money it could into new models to have any chance of recovering? The two were yelling nose to nose, and for a moment Fields thought they were going to fight. "I went f.u.c.king bananas," he said later. "Don and I almost literally went at each other's throats."

Bill Ford couldn't believe it. These were the guys who were supposed to be leading the turnaround, not brawling in front of their fellow executives.

Fields could be a hothead at times, and he had made enemies in the UAW with his blunt negotiating style. He also raised eyebrows in the Gla.s.s House by taking a starring role in a quasi doc.u.mentary about the turnaround that was broadcast on the company's website. (His most memorable line: "Change or die, baby, that's what it's all about.") But Fields was trying his best to rally the troops. Leclair was needlessly provoking him, and Bill Ford was losing patience with his sharp-tongued CFO. The situation got so bad that the board of directors had to step in. Irv Hockaday, one of the senior outside directors, sat down with Fields and Leclair. "You guys better get on the same page," he warned.

Ford was perilously close to unraveling. The Ford family was growing restive with the mounting losses and sinking stock price, and they were starting to bicker among themselves. Edsel Ford II, Bill's older cousin and a longtime Ford director, in particular chafed at the expanding influence of Steve Hamp, Bill's brother-in-law and chief of staff. At family meetings, there was talk about possibly taking the company private in a leveraged buyout or even selling it. That was a long shot and couldn't happen unless the biggest of the family stockholders-including Bill Ford and his father-supported it.

Bill was spending a lot of his time and energy calming the waters and rea.s.suring his sisters, cousins, aunts, and uncles that the turnaround was on track. "We had some pretty lengthy family meetings where there were lots of questions and a lot of different scenarios were played out," Bill said. "But thankfully there was a collective resolve in the family to see this thing through."

On July 12-two days before the Ghosn-Wagoner dinner-the Ford board met on the top floor of company headquarters in Dearborn. The agenda was packed with pressing issues, none bigger than the plan to mortgage Ford's North American a.s.sets to borrow billions of dollars for the restructuring. There was also discussion about General Motors and whether Ford should consider pursuing an alliance with Renault-Nissan if GM rejected it. But everything else was pushed aside when Bill Ford made his plea for help. "I am really struggling to keep all these b.a.l.l.s in the air," he said. "I want to get somebody in here."

Joe Laymon, the Ford personnel chief, had kept a running list of potential CEO candidates. One name continued to stand out: Alan Mulally, the executive vice president at Boeing. Bill Ford had asked months earlier for a dossier on him, and Laymon was impressed with what he found. Mulally had all the skills needed in the auto industry-an engineering background, lots of manufacturing experience, success in labor relations, and the ability to manage thousands of employees and develop extremely sophisticated products.

John Thornton, the director from Goldman Sachs, had first suggested Mulally, and Bill asked him to make the initial contact. "Can you call him and feel him out?" Bill said.

Thornton reached Mulally at his home in the Seattle suburb of Mercer Island, Washington. The Goldman Sachs director identified himself and briefly described the need for a top-flight chief executive at the auto company. "Would you be at all interested in coming to Ford?" Thornton said.

Mulally was about to turn sixty-one and had worked for Boeing for thirty-seven years; he lived and breathed airplanes the way Bill Ford did cars. He had been pa.s.sed over twice for the chief executive position at Boeing, so it was not unusual for large corporations to contact him about CEO openings elsewhere.

Mulally said he was flattered to be considered but wasn't looking to make a change. He was, however, willing to talk more. A few days later, Laymon flew to Seattle and met with him at the Four Seasons Hotel. When he got back, he went straight to Bill Ford's corner office. "I think I've just met," he said, "the most remarkable operating executive in the country."

Laymon couldn't get over how refreshing Mulally was-his sunny disposition, his rapid-fire mind, and especially his infectious enthusiasm. Alan Mulally had one of those old-fashioned, all-American life stories. He grew up in Lawrence, Kansas, the son of a postal worker, with dreams of becoming an astronaut until he learned he was color-blind and couldn't qualify. Instead, he studied aeronautical engineering and joined Boeing fresh out of the University of Kansas.

He still choked up talking about it. "I remember driving along the airport in Seattle and there were all these Boeing hangars and the doors were open and there were all these planes," Mulally said. "Here were these 737s and 747s, and it was like, 'My G.o.d, this is what I want to do, to build the best airplanes in the world.'" He climbed the corporate ladder to vice president of engineering, then head of airplane development, and finally to president and chief executive of the entire commercial aircraft division. (Boeing had moved its corporate headquarters to Chicago a few years earlier, but Mulally's division remained based near Seattle.) Mulally's job was extraordinarily complex, even by auto industry standards. He commanded small armies of engineers, designers, and suppliers, and he shepherded new planes from the blueprint stage all the way through the a.s.sembly of million of parts, past the rigors of testing, and ultimately onto the runway for the maiden flight.

He was also intimately involved in the business side, responsible for sales and marketing, labor contracts, and government relations. Mulally had a great resume, but what captivated Laymon was his personality, the twinkle in his eyes, and the toothy smile that lit up a room. He wore a blue blazer, pressed khakis, and penny loafers, and went on and on about how "neat" it was to work for an American icon like Boeing. Lean and athletic, with short auburn hair and fair skin, Mulally seemed uncommonly youthful for his age and infused with a rare, lofty spirit. "I've always wanted to contribute to a compelling vision, something big, something important," he said. "It's all about service, what I can do to help and contribute."

Laymon had worked with many executives in his twenty-seven years in corporate human resources, but he had never encountered anyone quite like Mulally. Laymon was a tough labor negotiator and definitely not a pushover. And he had done his homework. He knew Mulally wasn't a saint. He had a reputation as being intensely demanding of people, to the point where Boeing sent him to a career coach to polish away his rough edges. But right now the guy was achieving results at Boeing that n.o.body at Ford was capable of. And the best part was that he seemed keenly interested in Ford and asked lots and lots of questions: What kind of guy is Bill Ford? Why did he want to step aside as chief executive? How involved was his family? Where does the company need to go? Was Ford looking for a leader?

Bill stopped Laymon right there. "I've heard enough," he said. "I want to meet him."

Mulally wanted to meet him too. He had not seriously considered leaving Boeing until he really started thinking about Ford. He secluded himself in the den of his home and read everything he could find about the company: its history, its brands, its financial results, its international presence, the industry, the compet.i.tion.

"All I know is they're looking for a leader, and I'm a leader," Mulally said. "So if I'm going to lead, where does it need to go? Where's it been? Seeing these numbers and these losses and market share going down and cash going out, I'm in the mode of 'What needs to happen here? What should the plan be?'" Mulally had enjoyed an extraordinary career with Boeing. But both times he had competed for the CEO position, the board had chosen someone else. The chances of getting a third shot were slim. He could visualize himself starting over at Ford. The more he studied the company, the more it felt right, like destiny.

When Laymon called again, Mulally was primed to see Bill. But he was hypersensitive about secrecy. He didn't want anyone at Boeing to know. Neither did Laymon. "We thought if they got wind of it, they'd throw a s.h.i.tload of money at him to stay," he said.

The plan was to send a Ford corporate jet to pick up Mulally in Seattle and fly him to Michigan. Bill suggested they hold the meeting at his home in Ann Arbor, which was a surprise to Laymon: "Bill had never taken any job candidates to his house before."

July 29 was a hot, steamy Sat.u.r.day afternoon, with temperatures in the 90s. A Ford security officer met Mulally at the Willow Run Airport west of Detroit and drove him to Bill's house. As the car pulled into the driveway, Bill, wearing shorts and a polo shirt, came outside with his wife, Lisa. Mulally popped out of the car and sort of ran toward them. When he got to Bill, he threw his arms out and hugged him. It caught Bill off guard. Lisa's eyes got big. Then Mulally smiled and hugged her too, like they were the oldest of friends. Bill had met an awful lot of job candidates at Ford in his time. But no one had ever done that before.

"I thought it was kind of cool," he said.

They went inside and sat down, and Bill opened up immediately. "I have a very young management team, and I need someone to help us," he said. "I'm pretty fearful of what I sense is coming at us, and it would be so much better if I had an executive who had been through what we're about to go through."

"Tell me," Mulally said, "what you think you're about to go through."

Bill laid it all out-the global compet.i.tion, the need to integrate the company, shifting from trucks to greener cars, downsizing the North American operations, borrowing billions to pay for it all. Bill was baring his soul, and Mulally sat on the edge of his seat, taking it all in. Bill found himself thinking about how relaxed he was in Mulally's presence. Then it was Mulally's turn to talk.

"I think you need clarity," Mulally said. "You need real clarity of the plan, clarity of communication. Let me ask you, why do you have so many brands? Why do you have different cars in different regions? If the Ford brand doesn't shine brightly, why do you have all the rest?"

Good question, Bill thought. He explained that the other brands were meant to do what the Blue Oval couldn't-attract upscale buyers, broaden the company's appeal, and bring some European cachet and know-how to a blue-collar American company.

Mulally didn't get it. At Boeing, the company and the brand were synonymous, and everybody pulled together in the same direction. Why couldn't it be done at Ford? "Remember, I'm an engineer," he said. "I solve problems, and I create things. If you're going to turn this around, you need a plan." When he began describing how he would refocus the company, it suddenly dawned on Bill that this stranger who'd hugged him at the front door knew more about Ford than any outsider he'd ever met. "It was disarming how extremely well prepared he was," he said.

When Bill brought up fuel economy, hybrid cars, and protecting the environment, Mulally almost leapt out of his chair. "G.o.d, I have your green vision too!" he chirped. "I have to make that happen!" They had been chattering on for two hours without a break when Bill suddenly got up and went into the kitchen. He came back with two sheets of paper. On one he had outlined the duties of the chairman's job at Ford; on the other, the corresponding responsibilities of a chief executive officer. It struck Mulally that Bill had already mapped out how they would work together at Ford. "What do you think?" Bill said. "Would this possibly work for you?"

Mulally didn't answer him directly. He couldn't tell if this was a job offer or what. All he knew was Bill Ford liked him, they got along very well, and this had the potential to be an amazing opportunity. "One thing I knew is I could work with this guy," he said. "Because he had clearly decided he could work with me."

The afternoon wore on into the early evening, and Bill and Lisa took Mulally to dinner at their favorite Italian restaurant in the Kerrytown section of Ann Arbor, near the University of Michigan. The conversation kept rolling over red wine and pasta, and got more personal. Mulally talked about his wife, Nikki, their five grown children, and their great life in Seattle, and how he loved golf and tennis and the beautiful country in the Pacific Northwest. "The last thing on our minds is to pack up and move," he said.

Uh-oh, Bill thought. He was so impressed with Mulally, his skills and ideas, and the chemistry between the two of them. "He was exactly who I was looking for," Bill said. "At dinner, we were almost finishing each other's sentences." But every time it seemed that Mulally was falling for Ford, he'd bring up how much he loved Boeing and Seattle. After coffee, Bill and Lisa drove Mulally to his hotel. He would be flying home on the Ford plane in the morning and promised to get back in touch soon. On the drive to their house, Lisa read her husband's mind. "He seems almost too good to be true," she said.

Bill wondered the same thing. "Is it too perfect?" he said.

Back in the office, Bill called in Laymon and gushed about Mulally. "On a scale of one to ten, he's an eleven," Bill said. "We need to put the hard sell on him." Laymon's job was to craft a compensation package of salary, bonuses, and stock options that Mulally couldn't refuse. And they needed to get the Ford board on the case. Bill called Mulally and gently asked him what he was thinking.

"I'm really intrigued by Ford," Mulally said. "It's such an iconic company, and it means so much to America. I really think there are a lot of things I can bring to the table." But Bill wasn't getting the answer he wanted.

"Alan was kind of cagey," he said. "He never said yes, but he never said no. I could tell he was just torn between us and Boeing." Bill suggested that he send the Ford plane to pick him up the next weekend and fly Mulally to Aspen, Colorado, to meet with Irv Hockaday and John Thornton, the two directors overseeing the CEO search. They could answer any other questions he might have about Ford, the board, the executive team, whatever he wanted to know. Mulally said okay, he could do that.

While the recruitment effort swung into high gear, other wheels began to turn in the Gla.s.s House. The Ford board brought in a former Wall Street investment banker, Ken Leet, to begin a strategic review to decide which of the ailing luxury brands to sell and to start a.s.sessing the market for potential buyers. Aston Martin and Jaguar were at the top of the list.

Leet was also weighing the future of the huge Ford Credit finance arm. With GM selling off control of its credit company, maybe Ford should do the same to raise cash for the turnaround. On top of that, Mark Fields was pushing for big production cuts in the North American factories. Ford's unsold inventory levels were growing dangerously high, and Fields wanted to idle the plants for several weeks to bring the numbers down.

Ford was also squarely in the media crosshairs. The hiring of Leet sparked speculation about big changes coming as well as dissension in the executive ranks and the Ford family. To make matters worse, the company was gearing up buyout offers, and union officials were slamming management for scaring workers into giving up their jobs. "I don't call them buyouts," Mark Guerreso, head of a union local in Dearborn, told the Detroit Free Press. "I call them sellouts."

Fields, to his credit, took it upon himself to fight back. In an appearance at an industry conference in northern Michigan, he lashed out at the media for its constant attacks on the American carmakers. "This dismissive portrayal of Detroit and the cynicism we sometimes have for the home team is like nothing I've ever seen before," Fields said. "It's time to believe in ourselves again, so that consumers around us can do the same." It was an inspired speech, but unfortunately, within a few days, reporters were only interested in the 21 percent production cuts planned for the fourth quarter-the biggest at Ford since the early 1980s.

Bill Ford was keeping his fingers crossed about Mulally. He was delighted to hear that Mulally had had a positive five-hour meeting with the Ford directors in Aspen. Soon after, Laymon went to Seattle to present Mulally with a formal offer sheet. The numbers were impressive: a $2 million annual salary, a $7.5 million signing bonus, at least $10 million to cover his potential future earnings at Boeing, and a boatload of Ford stock options down the road. Laymon figured that would clinch the deal and told Mulally to call when he was ready to sign it.

But what he didn't know was that Mulally had developed reservations. He was in the middle of a.s.sembling the team and designs for Boeing's next jetliner, which would be a magnificent way to cap his career. And he was so close to his people, so proud of what they had done together, that he couldn't bear the thought of leaving them. "I know every person here. . . . I loved them. . . . I grew up with them," he said. "We had been in the depths of despair together after 9/11. I never felt more loved and appreciated." He broke his silence and talked about the Ford offer with his boss, Boeing chief executive Jim McNerney.

"I've been approached by Ford, and I'm thinking about it," Mulally told him.

McNerney couldn't believe he was even considering it. "You've got to be kidding me," he said. "You have a great job here at Boeing. You know, the automobile business is really tough."

Mulally was torn up inside, trying to decide. He huddled with his wife and his children. He weighed the pros and cons, the excitement of starting fresh at Ford versus his heartfelt affection for Boeing. Finally he called Bill Ford on a Friday night.

"Bill, I regret I'm going to have to pa.s.s on this fabulous opportunity," he said. "I really love you. I really love Ford. But I just can't do it. I've decided to stay." When he stopped talking, he didn't hear anything. He thought the phone had gone dead. "Bill?" he said.

"I'm here," Bill Ford said softly. He felt a distinct pain in his gut. It took him a minute to gain his composure before he could speak.

"Alan, I respect you so much and your decision so much," he said. "I'm deeply disappointed. But I respect your decision. I just want you to know that if there is anything else you can think of that I can do, we can do, or anything you need that in any way might change your mind . . . that I'm here. I know you're the right person for Ford."

After they hung up, Bill called Laymon on his cell phone, getting him in the middle of dinner with his wife. "We just lost Alan," he said. "The deal's off."

At first Laymon laughed. "I thought he was bulls.h.i.tting me," he said.

But Bill was in no mood to go into details. He hung up and got on a conference call to tell the Ford directors.

Thornton was stunned and promised to call Mulally as soon as he could. "Let me take a crack at him," he said.

Meanwhile, Laymon frantically dialed Mulally's home over and over. Finally his wife, Nikki, answered. "Alan isn't taking any calls," she told him. Laymon was so upset he was ready to drive to the airport and get on a plane to Seattle that night.

But Mulally went underground and couldn't be reached all weekend. He told McNerney that he had turned Ford down. But he felt terribly conflicted. "I knew this wasn't about Bill," he said. "It was about me. I had to decide what I was going to do."

Thornton reached him a couple of days later and put on the full-court press. "Alan, you've done everything you can for Boeing, and you should feel good about it," he said. "But a great American company needs you. This is about America and our compet.i.tiveness." Mulally was taken aback by the emotional appeal and wondered aloud whether he had made the right decision.

Thornton sensed he had left the door open a crack. He immediately called Bill Ford. "It's not over," he said.

When Bill heard that, he felt a surge of energy and summoned Laymon. "I want you to go to Seattle and don't come back until you have him," Bill said. "I mean it. Do not bring your a.s.s back to Detroit without Mulally. And if you don't come back with Mulally, don't come back. I don't care if you have to buy a house out there. Get him."

The next day, as soon as he checked into the Four Seasons in Seattle, Laymon called Mulally, who was plainly irritated with him.

"Why are you here?" he said.

"Because I'm not giving up on you," Laymon answered.

They met at the hotel, and Laymon pitched Ford as hard as he ever had in his life. Over the next few days, they talked and ate together and took long walks along the sh.o.r.e of Puget Sound. In the end, after a lot of soul-searching, Mulally arrived at the moment of truth. What it finally came down to was simple. Boeing could go on without him. Laymon could tell that Mulally was disappointed that the Boeing board had never made a substantial counteroffer, such as promoting him to chief operating officer. The fact was, Ford needed Mulally, and he needed Ford. "I was just so excited about that," he said. "The more I kept thinking about it, the more I thought I could serve another American global icon. I can take Ford flying again."

He called Bill, and this time gave him the answer he was praying for. "This is just so compelling," Mulally said. "I want to turn around this great company with you."

"Oh my G.o.d," Bill said. "How soon can you get here?"

On August 31, Mulally flew to Chicago-where Boeing had its corporate offices-to tell McNerney that he was going to leave the aeros.p.a.ce giant after thirty-seven years to become the new president and chief executive officer of the Ford Motor Company. Laymon flew separately and waited nervously in a conference room at Midway Airport. The Ford personnel chief was petrified that Boeing would make a last-ditch effort to keep Mulally. But when Mulally walked into that conference room, he had a big grin on his face. He reread the employment contract Laymon had with him, then signed it. And for the first time in as long as he could remember, he didn't scribble a little cartoon airplane next to his signature.

Mulally wouldn't officially start at Ford until October, but Bill and the board were anxious to make a public announcement. On the evening of September 4, Mulally sat alone in his suite at the Ritz-Carlton Hotel in Dearborn. For the longest time, he stared out the window at the illuminated Blue Oval sign, just across the highway, on top of Ford's world headquarters. "I kept thinking: a compelling vision, a comprehensive strategy, and then relentless implementation," he said. "That's our plan."

Early the next morning, a driver took him to the Gla.s.s House. He mentally cataloged all the vehicles he saw parked in the underground executive garage-Jaguars, Volvos, Land Rovers. Not a single Ford model in sight. That, he said to himself, was going to change.

He met with Bill, whose eyes were puffy and red-rimmed after a sleepless night worrying that the news would leak out before the press release. Together they entered a first-floor auditorium filled with employees and executives, journalists, and camera crews. Bill spoke first. He promised that even though he was giving up the CEO job, he would stay on as executive chairman of the company his great-grandfather had founded 103 years before. "I'll be here every day, and I will not rest until a prosperous future for this company is secured," he said. "I have been part of this company since I was born, and I will be part of it for the rest of my life."

Then he turned it over to Mulally, who blinked into the banks of TV lights and said he had come to Ford to prove something. "Some people think the United States can't compete in the design and production of sophisticated products," he said. "I personally think we can."

Chapter Sixteen.

An enormous stage and tiers of bleachers were set up in a gra.s.sy field at the four-thousand-acre GM proving grounds in Milford, Michigan, about fifty miles northwest of Detroit. Buses shuttled hundreds of journalists to the site, where a dozen immaculately restored, vintage pickup trucks, including a century-old Chevy, sparkled under the hot August sun.

It was a debut worthy of GM's most antic.i.p.ated new products in years. The homage to the past was almost reverent. But the real guests of honor were GM's billion-dollar bets on the future-the all-new, 2007-model Chevrolet Silverado and GMC Sierra full-size pickups. If there was any question about how critical these vehicles were to GM's comeback, Rick Wagoner answered it as soon as he stepped to the microphone. "They are the most important component," Wagoner said, "of the most important part of our turnaround."

GM had spared no expense developing what it believed were the finest new products in the most profitable segment of the U.S. market. Americans loved their pickup trucks, and they bought an average of 2.7 million a year. The Asian manufacturers may have dominated the pa.s.senger car market, but Detroit still owned the truck business. The market was a gold mine for the Big Three, who held an amazing 92 percent share of the truck segment and were committing vast resources to keep it that way. And no wonder: each truck earned an estimated $10,000 in profits.

Wagoner had pushed up the timetable for the new models in early 2005, just when the automaker was beginning its financial free fall. His decision had only added to an already huge budget. All told, it had cost more than $2 billion to design and engineer the pickups and their sister products, the hulking Escalade, Suburban, and Yukon sport-utilities.

But GM was determined to raise the bar with its new trucks. They came with options galore: eight different engine configurations, three cab styles, three cargo box lengths, five suspension packages, and all the creature comforts of a luxury sedan, from the plush leather seats and heated steering wheel to the touch-screen navigation systems and flip-down DVD displays in the roof. These trucks were like rolling living rooms that could climb a mountain, ford a river, tow a horse trailer, and carry a ton-literally-of stuff.

The GM project team was swarming all over the event, eager to explain every last detail of the new Silverado and Sierra. GM sold more than a million of these big rigs each year, and it wanted to sell even more. Getting good reviews from the media was the first element of a marketing blitz built around a monster advertising campaign that featured roots rocker John Mellencamp and his new song, "Our Country."

After the speeches and the unveiling of the trucks onstage, a horde of reporters gathered around Bob Lutz. Wearing a blue denim GM shirt and aviator sungla.s.ses and smoking a long cigar, Lutz puffed with pride as he described just how awesome these pickups were. "There is no other truck that can touch us," he said. "It's not even close." He scoffed at concerns about fuel economy. These pickups could get twenty miles to the gallon, and GM wasn't at all worried that rising gas prices might diminish their appeal. "The effect will decrease over time as people adjust to the thought of $3 a gallon, just as they did when it was $2 a gallon and just as they did when it was $1 a gallon," he said.

Lutz saved his most pointed comments for Toyota. The j.a.panese automaker was putting the finishing touches on a new $1.3 billion a.s.sembly plant in San Antonio, Texas, where it would build the latest generation of its Tundra pickup. Toyota had been trying to crack Detroit's stranglehold on the full-size pickup market for years. But its first two models weren't muscular enough to stack up with the Silverado, the Ford F-series, or Chrysler's Dodge Ram. "Toyota has had three tries to get it right, and Toyota usually gets things right on the third try," Lutz said. "But they will not be able to take over our trucks."

No matter how much money or market share GM lost, its sense of superiority never seemed to waver. The new pickups were the first wave of an armada of new vehicles that GM management was sure would turn the company's fortunes around. But only two days after the truck rollout, GM reported that it lost $3.2 billion in the second quarter of the year. A big chunk of the loss was the cost of buying out thirty-four thousand workers. Apparently that was the price of progress at the world's largest auto company. Yet somehow it didn't add up. How could GM justify giving people billions of dollars to leave when it wasn't earning enough money to pay the employees it still had? No problem. GM was going to spend its way out of trouble, whether it was cutting jobs or expanding its product lineup. Most companies couldn't live that way. But the conceit of GM was that it was too big to fail and didn't need to play by conventional rules.

Wagoner never pretended to be a car guy, but he still got chills over a gorgeous new automobile. On August 18, he drove the sleek Chevrolet Camaro concept car down Woodward Avenue in the Dream Cruise, an annual celebration of Motor City history that drew tens of thousands of cla.s.sic-car lovers from across the nation to the streets of suburban Detroit. With a police escort leading the way, Wagoner made a dramatic entrance at the event, and it felt good to hear the cheers and honking horns saluting the latest incarnation of one of GM's legendary muscle cars. "This car is kind of an exclamation point," said a beaming Wagoner. "It shows that people have a connection to our history and that we still have the ability to do great cars and trucks."

Call it confidence or a bad case of denial, but GM management felt it was on a righteous mission. And no one had any desire to change course and join forces with Carlos Ghosn and Renault-Nissan. "It's just an all-around bad idea," Lutz said. "Everything about it tilts in their favor."

But Wagoner couldn't afford to take the alliance talks lightly. Kirk Kerkorian wasn't the only shareholder growing impatient with management. Other large investors were intensely interested in what Ghosn might bring to the table. Fritz Henderson's first face-to-face meetings with Ghosn's team-Patrick Pelata of Renault and Carlos Tavares from Nissan-happened in late August in Detroit. Henderson set strict parameters from the start. He proposed that the two sides limit the study to potential savings on six different vehicles, three dozen parts systems, and two hundred individual components. His rationale was that they could identify specific savings by looking at individual models and comparable parts. But that was like studying a map with a microscope. There was no way to extrapolate how three companies building millions of vehicles could work together to design, engineer, buy parts, and ultimately build products.

"They want to do the bare minimum," Ghosn said. "I think from the beginning they are not interested in the alliance."

He was right. Wagoner, Lutz, and a majority of the GM board viewed the deal as a thinly veiled attempt by Kerkorian and Jerry York to take over General Motors. If Renault-Nissan bought 20 percent of GM, their stake combined with Kerkorian's stock would effectively give them control. "It was a way to get ahold of General Motors and turn it over to Carlos Ghosn," said John Bryan, the GM director.

Publicly, GM promised to investigate the merits of a possible partnership. But as soon as the talks got under way, GM's communications staffers began pushing stories that raised questions about Ghosn's leadership and the effectiveness of the Renault-Nissan alliance. In briefings with other GM executives, Henderson mocked the alliance's reputation as a model of industrial cooperation. "Some of these Renault and Nissan people haven't even met each other before," he said. "I mean, they've been together for eight years, and they're finally getting ready to roll out their first joint engine program. It only took them eight years!"

Ghosn wasn't deterred by the trash talk. He was committed to finding out what could be done in a three-way alliance, even if it was just an academic exercise. "Sharing platforms, sharing engines, buying parts together . . . at the end of the day there is huge potential for savings," he said. And he wasn't bashful about putting numbers out in public. He told a.n.a.lysts in Paris that, at a minimum, he envisioned the companies saving $3 billion to $5 billion a year by purchasing parts together. Privately, he wondered whether the GM executives even realized how uncompet.i.tive their company was. "Even the kind of organization they had was a complete mess," he said. After the first few weeks of talks, Ghosn sensed that GM was just going through the motions. "Very courteous, very polite, very nice people," he said. "But in a certain way, they don't listen. They already have their conclusion."

While GM reluctantly explored an unwanted alliance, the biggest international auto merger of them all was coming apart at the seams.

The DaimlerChrysler merger was nearing a breaking point. On September 7, Ron Gettelfinger formally rejected a health care deal that would have saved Chrysler more than $300 million a year. When he heard that, Dieter Zetsche went ballistic. "I do not f.u.c.king believe this!" he said to Jason Vines, the head of Chrysler communications. "What do we have to do to get what GM and Ford got? Lose $10 billion?"

Chrysler was already spiraling down under the leadership of Tom LaSorda, and whatever market momentum it had came to a screeching halt over the summer. Just like GM and Ford, Chrysler was also overrun with inventories of unsold vehicles, mostly big SUVs such as the new seven-pa.s.senger Jeep Commander. And its management team seemed incapable of steering it out of trouble. Dealers across the country were in open revolt against Joe Eberhardt, the German executive who headed its sales and marketing department. Eberhardt had been relentlessly pushing dealers to accept more products from the factories, but the dealers finally balked and refused to take any more cars. "We voiced our complaints over and over and nothing changed," said Carl Galeana, a big dealer in Michigan and Florida. "It's just an ugly, ugly situation."

Chrysler's senior executives appeared to be in over their heads. Eric Ridenour, Chrysler's chief operating officer, had done nothing to adjust the overheated production levels, and a sense of panic was sweeping through the headquarters tower at the Chrysler Technical Center in Auburn Hills, Michigan. In desperation, Eberhardt started offering costly "employee-pricing" discounts to lure consumers into Chrysler showrooms. And Zetsche agreed to appear in an offbeat ad campaign, taking on the wry persona of "Dr. Z," sort of a German version of the legendary Chrysler pitchman Lee Iacocca.

But none of it was working. On September 15, Chrysler announced that after twelve consecutive profitable quarters, the company had imploded; its third-quarter losses were forecast at $1.5 billion.