Once Upon a Car Part 16

Wagoner still couldn't come to terms with that. "Why would you take that risk," he said, "when the economy is teetering on the brink?"

But at this point GM was pinning all of its hopes on Was.h.i.+ngton. Wagoner, Henderson, Ray Young, and the entire team would drive themselves to exhaustion to put together a top-notch reorganization plan for Pelosi and Reid. It was government a.s.sistance or nothing. There was no merger, bank loan, or mystery investor that could help General Motors-only Uncle Sam.

Chrysler already had its bankruptcy papers ready. Whether Cerberus would finance it if the company filed for Chapter 11 was unclear. Feinberg knew that, in the end, his firm would have to cut loose the car company if it accepted government money. He was just being realistic; there was little chance that Was.h.i.+ngton would approve a bailout that benefitted private equity.

If Chrysler ever made another comeback, it would be with another new owner. Carlos Ghosn didn't want any part of it; Renault-Nissan had broken off all talks. But Fiat was still hanging around as a potential partner. And despite Chrysler's dire prospects, Feinberg had made up his mind to let Nardelli continue working to save the company. "Bob is special," Feinberg said. "He's hard-nosed, he doesn't take any c.r.a.p, and he gets the job done." Nardelli was already hunkered down in Auburn Hills, working nonstop to prepare the best possible restructuring plan to bring to Congress on December 2.

And Ford? The Was.h.i.+ngton hearings were another fork in the road for the guys in the Gla.s.s House. Ford did not need the money. Should it go back for another round of hearings just to support GM? Did it need to show Congress its plan?

Ford's first big executive meeting took place the day after the hearings. The conference room was totally silent as Mulally recounted his experience. "Nothing could prepare you for how mad and disappointed they were," Mulally said. "I felt like I was running guns or drugs." He understood the anti-bailout hostility, but it was incredibly revealing to hear how fed up people were with Detroit. "I mean, I came to help," he said. "I'm part of the answer, not the problem. I have a G.o.dd.a.m.ned business plan. Stop yelling at me." He looked around the room at Bill Ford, Farley, Fields, Kuzak, and Lewis Booth, the new finance chief, and asked them the hard question. "So do we go back?" he said. "And do we submit a business plan?"

This was a juncture in history, the exact moment when the Big Three parted ways forever. For decades, these three auto companies had moved in lockstep, whether it was the cars they built or the wages they paid or the mistakes they made. They had always fought like brothers in the same house and played by their own unique, inbred set of rules. But not anymore. Ford was going in one direction, and GM and Chrysler were going in another.

Yes, Mulally thought Ford should go back to Was.h.i.+ngton when the time came. "If GM went into a free fall, it could turn the U.S. recession into a depression," he said. "So we had to go." But he would not ask for a loan or special treatment. He would be there to show the world that Ford had a plan and could stand on its own. Ford would do the right thing and support the industry. That was smart business. And in the process it would prove the doubters wrong and demonstrate that there was at least one car company from Detroit that had its act together.

The misery index kept climbing in the Motor City. On the day before Thanksgiving in 2008, five thousand salaried workers walked out of Chrysler, buyout checks in hand. People wept and hugged in the parking lots as they hauled out their personal belongings. Katrina Harris, a Detroit native who had started as a summer intern at Chrysler fourteen years before, said she wanted to get out with something before the company crumbled. Still, it was an emotional decision. "Chrysler is all I know," she said. "I'm giving myself a year to kind of tread water, and then I may have to move out of Michigan to find something." Jim Burns, a twenty-two-year Chrysler veteran, took the buyout too. "I've been through previous downturns, but there was always a light at the end of the tunnel," he said. "This time I'm not seeing any progress. I couldn't turn it down."

Other workers vowed to stick it out. "I'm better off collecting as many paychecks as I can and trying to hang on," said Diane Pierse, a forty-five-year-old mother of two. "There's a lot of hard work ahead of us, but I want to ride it out and be here when it turns around." But the empty cubicles were adding up at the Chrysler tech center. Whole floors in the headquarters tower were vacant. One of America's proudest industrial companies was being hollowed out in a last-ditch bid to cut costs and save itself.

It was time for big changes, both substantive and symbolic. GM shut down its corporate jet terminal at Metro Airport and said it was putting its seven planes up for sale. Ron Gettelfinger held a news conference at Solidarity House and offered two major concessions to help secure a bailout-suspending the jobs bank entirely and allowing the companies to delay their first huge payments into the retiree health care trusts. "We're willing to take an extra step here," he said.

On December 2, the new, improved business plans were submitted to Congress-with higher price tags. GM said it needed $4 billion in loans to stay afloat until the end of the year, and a grand total of $18 billion to survive. Chrysler requested $7 billion, while Ford asked for a $9 billion line of credit but no actual loans. All three companies vowed to further streamline their operations and accelerate production of their most fuel-efficient cars and hybrid models. GM also began negotiations with its bondholders to cut its debt in half to $30 billion.

To dramatize their newfound respect for frugality, the three chief executives drove from Detroit to Was.h.i.+ngton for the next round of hearings. Mulally conducted interviews on his cell phone while an aide drove a Ford Escape hybrid; Wagoner talked to Jennifer Granholm and others while he was cruising to D.C. in a hybrid version of the Chevy Malibu. "I know how politicians think, Rick," Granholm urged him. "Don't read from a script. Look them in the eye. Tell them that you are not going to resist change and that you are going to lead this industry to help the nation achieve its goals." Wagoner thanked her and promised that this time would be different.

And it was different. Wagoner seemed sharper and more direct, contrite rather than ent.i.tled. "We're here today because we made mistakes, which we are learning from, and because some forces beyond our control have pushed us to the brink," he told the Senate panel. "Most importantly, we're here because saving General Motors, and all this company represents, is a job worth doing."

Nardelli bore the brunt of criticism for-no surprise-Chrysler's links to Cerberus. Senator Corker provoked him with his brisk a.s.sessment that Chrysler was just a p.a.w.n in a private equity game.

"Chrysler doesn't really want to be a stand-alone business," Corker said. "You want to hang around long enough so you can date somebody and hope to get married soon before you run out of money."

The a.n.a.logy riled Nardelli. "I can a.s.sure you, Senator, that I don't wake up every morning thinking of selling the company," he snapped.

Corker couldn't resist comparing Chrysler to a woman trying to make herself more attractive to a partner. "While this is happening you're going to be going to spas and getting facials and trying to get someone to marry you," he jibed.

That really set Nardelli off. "I've been married for thirty-eight years," he said.

Corker just shook his head. "I was talking about your company," he said.

But it was Mulally who seemed like a new man in the hearings. He had worked for hours and hours with his staff to craft a compact speech and mission statement that explained the One Ford plan and how Dearborn had already changed its ways. The operative wording was "used to be," as in how the old Ford behaved versus the new, improved Ford. "It used to be that we had too many brands," he said. "Now we have a laser focus on our most important brand: the Ford Blue Oval." He went through all the things Ford "used to be" and how it had evolved for the better.

Ford didn't want any government money, Mulally said. It would take a line of credit if it was offered but nothing more. Ford had nothing to apologize for and didn't need to beg. He promised that Ford was making a comeback on its own. "There is a lot more work to do," Mulally said. "But we are pa.s.sionate about the future of Ford."

As the hearings dragged on, the Democratic leaders.h.i.+p battled bailout fatigue to put together a new, palatable rescue plan for Detroit. A $15 billion short-term loan package was now in the works; Speaker Pelosi was even willing to use energy loan funds if they were replenished in the future. And there would be tough restrictions attached to the money-no executive bonuses, no private jets, no dividends, stock warrants equal to 20 percent of the loans, and a car czar appointed by the president to oversee operations and expenses.

But Republicans lined up to attack the package. They wanted wage and benefit cuts for the union workers too. President-elect Obama also shared his opinion, saying senior management "should go" if they couldn't make the hard choices to fix their companies. Senator Dodd went a step further and suggested Wagoner ought to resign to give GM a clean slate.

A showdown was looming on Capitol Hill, with the fate of GM and Chrysler in the balance. Would the economy collapse if General Motors closed its doors? n.o.body wanted to test whether what Wagoner warned of would come true. But this was an edgy atmosphere-a lame duck Congress, a new president coming to the White House, growing resentment over TARP, and an old, battered industry on the brink. Was.h.i.+ngton would have to decide: Did America care enough about its automakers to rescue them?

In the streets and churches and taverns and community centers of Detroit, residents were worried sick about what might happen next. Every day, Bishop Charles Ellis III heard from his congregation at the enormous Greater Grace Temple on the city's northwest side. "They'd say to me, 'Bishop, please pray for us,'" he said. "You could feel the fears rising, the nerves unraveling."

Most of his people were union workers at Ford, GM, and Chrysler. They watched the hearings and saw the animosity directed toward their employers and their way of life. This was a threat and a challenge to rise up. "We finally realized this was not a slam dunk for the Big Three to get these loans," Bishop Ellis said. "So we came up with the idea to dedicate our Sunday service to the automotive industry."

On December 7, churches all over Detroit prayed for federal aid. At one, a sign out front beckoned wors.h.i.+pers to come in and hear about "G.o.d's bailout plan." Roman Catholic churches distributed a special letter from Cardinal Adam Maida, the archbishop, urging people to maintain their faith "at this darkest time of the year." And at Greater Grace Temple, the largest church in the city, four thousand people attended a special service called "A Hybrid Hope." Parked on the wide altar were three gas-electric hybrid sport-utility vehicles-a Chevrolet Tahoe, a Ford Escape, and a Chrysler Aspen. The service opened with a hymn, "I'm Looking for a Miracle," and a reading from the Book of Romans: "I consider that our present sufferings are not worth comparing with the glory that will be revealed to us."

Autoworkers and executives, union officials and car salesmen all crowded into the pews and around the altar to sing, pray, and join hands in a show of unity. One of the first speakers was General Holiefield, the head of the UAW's Chrysler division. "We have done all we can in this union, so I turn it over to the Lord," he said. In Bishop Ellis's sermon, he beseeched the United States Congress to help Detroit out of its desperate plight. "We have never seen as midnight an hour as we face this coming week," he said. "I don't know what's going to happen, but we need prayer."

On December 8, congressional Democrats sent a draft of a new auto rescue bill to the White House, but senior officials there raised specific concerns. The Bush administration insisted that any automaker asking for federal funds needed to come up with a long-term viability plan.

A key clause was inserted requiring extensive restructuring blueprints to be submitted to the government no later than March 2009. With that compromise written in, the House approved the $14 billion bailout for GM and Chrysler on December 10 by a vote of 237170. The vote was largely split along party lines. The bill still faced huge hurdles in the Senate, where it needed sixty votes to pa.s.s.

That afternoon, President George W. Bush sent his chief of staff, Joshua Bolten, and Vice President d.i.c.k Cheney to pitch the legislation to Republican senators at their regular weekly caucus lunch. Cheney said the GOP ran the risk of being pilloried as "the party of Herbert Hoover" if they did nothing to prevent the auto industry's collapse.

But the Senate Republicans were in no mood to follow Bush's lead. They were upset that the UAW might benefit from taxpayer a.s.sistance without making any substantial concessions. And GM and Chrysler, they argued, would still be structurally unsound even after getting government money. Senator Richard Shelby dubbed the proposal "a travesty" and vowed to filibuster the bill if it made it to a vote.

The Senate minority leader, Mitch McConnell of Kentucky, deputized Bob Corker to negotiate tougher terms for both the automakers and the union. Early on the morning of December 11, Corker called Fritz Henderson, who was working at GM's offices in New York. The Republicans had three conditions, he said, to support an aid package: GM and Chrysler had to cut their debt by two-thirds, the union had to take stock instead of cash for half of their VEBA funding, and the UAW had to agree to reduce wages and benefits within a year to match the foreign transplant factories. Henderson readily agreed to everything. Then Corker called Ron Gettelfinger in Detroit.

Corker asked Gettelfinger if the union was willing to enter talks with him on the bailout bill. The union chief was very wary.

"Who are you representing here?" Gettelfinger asked.

Corker a.s.sured him he was speaking for the Republican caucus.

Okay, said Gettelfinger. He would send Alan Reuther, the union's legislative director and a nephew of UAW pioneer Walter Reuther, to negotiate on his behalf. That afternoon, Reuther arrived at the Capitol to meet with Corker and Democrat senators Christopher Dodd and Richard Durbin. They convened in the stately hearing room of the Senate Foreign Relations Committee for what would be a long, dramatic afternoon that wore on into the evening.

The sides came to an agreement fairly quickly on the VEBA funding, but the union balked at Corker's demands for parity in wages and benefits with workers at j.a.panese-owned factories. Reuther got the sense that Corker, a first-term senator and millionaire construction executive, wanted to rewrite decades of collective bargaining in a matter of hours.

When Reuther phoned Gettelfinger to update him, the union president felt the UAW had been drawn into an ambush. "The right wing of the Senate was trying to pierce the heart of organized labor," he said later. "It was like workers are expendable and wages mean nothing."

While the talks went on behind closed doors, the top lobbyists from GM and Ford gathered in an adjoining room. Steve Feinberg was there too. He was pulled into the negotiations briefly, but then was abruptly told to go wait with the others. "Dodd wouldn't let us leave," said Ken Cole of GM. Out in the cavernous hallway, groups of reporters and photographers staked out the scene, breathlessly waiting for some indication that the auto crisis was nearing a resolution. The guys from the car companies felt trapped and finally ordered pizza. "When it came, we went at it like it was filet mignon," Cole said. "But there weren't any napkins. Then I saw that Feinberg had grabbed all the napkins!"

By nine o'clock that night the union and Corker had hit a brick wall. There was no way Reuther was authorized to agree to a blanket pay cut for workers. Who would decide what parity was? Would the UAW have to call a vote of tens of thousands of members to ratify the changes?

"We know there has to be more restructuring, but this is ludicrous," Gettelfinger said. "It was like the Republican Party wanted to get even with us once and for all." It all boiled down to a target date-and the union would not agree to any major reduction in compensation before its contract expired in 2011.

Shortly after ten o'clock, Corker came out and faced the reporters and cameras. He didn't try to hide his disappointment. "We were about three words away from a deal," he groaned. The last-minute compromise efforts officially died on the floor of the Senate. There would be no bailout that day. "This is going to be a very bad Christmas for many people," said Senator Harry Reid.

The next day the White House held out the possibility of a financial lifeline. A spokeswoman for the Treasury Department said: "We will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry."

GM and Cerberus representatives began nonstop meetings with Treasury officials. General Motors had weeks-maybe days-before it defaulted on billions of dollars in payments to its suppliers. "The clock is ticking," said a worried Jennifer Granholm. "Automakers are drowning." To save money, Chrysler said it would close all of its plants for a month. GM announced emergency plans to idle twenty of its factories across North America. The company was tightening its belt in every way imaginable, including shutting off the lights and elevators in the Renaissance Center after 6:00 P.M. It was a chilling sight when GM's imposing headquarters complex suddenly went dark as night fell.

The frenetic discussions at Treasury revolved around how much money would go to GM and Chrysler, where it would come from, and what conditions would be attached. Henry Paulson was in the middle of the talks. Despite his reluctance to use TARP funds for the automakers, Bush told Paulson he would not let Detroit fail in the final days of his administration. "Although the president didn't explicitly say he would jump in to save the automakers, I knew he recognized the need for quick, decisive action," Paulson wrote in his book.

During his eight years in office, Bush had hardly been a fan of the Big Three. He had chided them for building substandard cars and for blaming their troubles on fuel economy rules and the trade advantages of foreign rivals. But Bush would keep his promise to Barack Obama. He would not allow Detroit's failures to cripple the economy before his successor took office. At 9:00 A.M. on December 19, Bush went on national television from the Roosevelt Room of the White House and said: "In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action."

He had approved emergency TARP loans with strict conditions attached: $13.4 billion for General Motors and $4 billion for Chrysler. Both companies had to submit in-depth restructuring plans by mid-February and prove their financial viability by March 31, or they would face bankruptcy. And there were very tough targets to meet along the way: cutting debt by two-thirds, funding half of retiree health care with stock, matching the wage rates of the j.a.panese-owned factories by the end of 2009. These were bridge loans that required considerable concessions not only by GM and Chrysler but by their lenders, workers, dealers, and retirees.

"We know we have a lot of work ahead of us," said a visibly relieved Rick Wagoner at a press conference. A grateful Bob Nardelli pledged that Chrysler would meet all of the government's conditions. "We intend to be accountable for this loan," he said.

That all sounded positive. But soon the automakers would have to reckon with Obama, who was signaling that Detroit had better change and change fast. GM and Chrysler, he said, "must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely required." And the president-elect issued a warning. "The American people's patience," he said, "is running out."

Chapter Twenty-Nine.

I can smell the fear in this town," said Sergio Marchionne. "I can feel it, the feeling of impending doom."

The Fiat chief executive had just wrapped up daylong negotiations with Bob Nardelli in Auburn Hills. Finally Chrysler had found its partner. Fiat was getting a 35 percent stake in Chrysler in exchange for providing it with badly needed new cars, engines, and vehicle platforms. The alliance was a critical component of the viability plan Nardelli needed to submit to the government by mid-February. For all its twists and turns, Chrysler was heading into a bizarre new phase.

Cerberus was on its way out, resigned to giving up owners.h.i.+p as part of the bailout. Steve Feinberg had tried unsuccessfully to sell Chrysler to the Treasury Department for $1 during the frantic last-minute loan discussions. Now the smallest of the Big Three was living from day to day on $4 billion in federal loans and appeared certain to seek more a.s.sistance when it returned to Was.h.i.+ngton. It was only a matter of time before Cerberus had to dole out chunks of its equity to fund the UAW health care trust and the banks that were still owed money. But was Chrysler even worth saving? Did it have a future? Marchionne wasn't sure. But he was willing to try.

He viewed the Chrysler deal as a way to bring Fiat back into the American market. But the landscape was changing so fast. After spending several days in Detroit, Marchionne began to appreciate the constant, withering pressure coursing through the U.S. industry. GM and Chrysler were on government life support, Ford was crawling on its hands and knees, and suppliers, dealers, and employees seemed scared out of their wits.

He had warned Nardelli that Chrysler would crash if U.S. sales plunged to ten million, and he was right. Now he found a city in deep despair, doubting itself, fearing the worst. Marchionne was an intellectual, born in Italy, raised in Canada, held degrees in law and accounting. But he was also a supreme pragmatist and believed progress could be forged out of the chaos in Detroit. "You have to be brutally honest with yourself," he said in a husky Italian accent. "There's nothing worse than bulls.h.i.+tting yourself into oblivion. You have to snap out of it and fight your way back. You cannot live in fear forever."

General Motors got its first $4 billion TARP loan installment on the last day of 2008, and Chrysler received its check two days later. The government aid was a fitting climax to the worst year in the U.S. car market since 1992. Sales at GM and Ford fell more than 30 percent in December. Chrysler "led" the industry with a stunning 53 percent decline. Dealer showrooms were empty. The disposable income that created three-car families, go-anywhere SUVs, and weekend pickup trucks had dried up. There was no credit available, no leases, and no money to lure buyers in with rebates.

And the economy was getting worse. The j.a.panese automakers were tanking too. Even Toyota had reported its worst corporate loss in seventy years. A rabidly compet.i.tive and ambitious industry had overproduced for too long. Its customers couldn't keep pace because more and more were unemployed, losing their homes, and couldn't get a car loan if they tried. The industry was no longer looking at annual sales of sixteen million units or even the woeful thirteen million sold in 2008. The rate now was ten million-and falling.

The consequences of the bleak market were swift and cruel. During Christmas week, GM abruptly shuttered two of its biggest SUV plants for good in Wisconsin and Ohio, just as Chrysler was mothballing a major sport-utility factory in Delaware. All three of the plants had supposedly been guaranteed future products in the union contract. But those promises had disintegrated.

In Janesville, Wisconsin, where GM had churned out 3.7 million big sport-utilities since the 1990s, the last workers filed out of the ninety-year-old plant after building one final Chevrolet Tahoe. Dan Doubleday, a twenty-two-year employee, broke down in the snowy parking lot after the a.s.sembly line ground to a halt. "I used to be a forklift driver," he said as he glanced at his watch. "Until about seven minutes ago."

This was more than a reckoning. Economic justice was being meted out. GM's voracious consumption of capital had been cut off. Chrysler was comatose, its entire manufacturing network in suspended animation. Opinion polls showed the American people were increasingly angry and disgusted with dysfunctional companies that were sucking up taxpayer money. As the jobs disappeared, Detroit's freeways and ancient downtown got emptier and quieter. Michigan's unemployment rate pa.s.sed 10 percent and kept rising. People were packing up and moving away in record numbers. The gathering gloom felt like mourning for a dying community.

Insults were heaped upon injury. Detroit's flamboyant mayor, Kwame Kilpatrick, had resigned in disgrace after pleading guilty to felony charges in a lewd political corruption scandal. And just after Christmas, the toothless Detroit Lions wrapped up the first winless sixteen-game season in National Football League history. No wonder Marchionne could smell the fear. This was the pits.

GM tried to put on a positive face. At the 2009 Detroit auto show, six hundred employees were rounded up at 7:00 A.M. to cheer on its first press conference, chanting "Let's go GM!" and waving blue-and-green placards saying CHARGED UP.

Jennifer Granholm led the pep rally, getting up onstage with Rick Wagoner and holding a HERE TO STAY sign. The company unveiled two new crossover vehicles and a Buick sedan, but the enthusiasm was forced and unconvincing. Wagoner told reporters that GM was talking with bondholders to reorganize its debt, negotiating with the union on health care and work rules, and making hard choices about which brands and models to keep. "Those are the major pieces, and they all add up to a business plan that meets the so-called viability test," he said.

One unexpected visitor to the flashy show stands was Bob Corker, the Tennessee senator who'd tried to put Detroit through the wringer in Was.h.i.+ngton. "I truly want to see these companies flourish," Corker said. "The solution I offered was tough love, but it was a solution."

On January 21, GM received another $5.4 billion in Treasury loans, the second installment of its ongoing federal bailout. The same day, the final tally for 2008 came in. Toyota had blown past GM as the world's number one carmaker, ending GM's seventy-seven-year reign atop the automotive world. The numbers weren't even close: the j.a.panese company sold nearly nine million vehicles for the year, six hundred thousand more than GM.

The t.i.tle was worthless now anyway. The only way General Motors could keep the federal funds flowing was to slash brands-Hummer, Saab, and Saturn topped the list-and drastically curtail its overlapping and slow-selling models. It had to shrink to survive, including eliminating another ten thousand salaried jobs.

And the spiritual leader of GM's vast global product empire was calling it quits. Three days before his seventy-seventh birthday, Bob Lutz announced that he would retire at the end of the year. He couldn't take the disdain and outrage directed at GM any longer. His parting shots were beyond bitter. "We are a country that hates its own industry," he said. "The auto industry may be partly at fault for its situation, but not entirely." But Lutz would never concede defeat. GM, he said, would rise again. "I am convinced that when everyone is staring at the reality of the situation, and also staring at the alternatives," he said, "they will make the right decisions."

But who would make those decisions? GM was occupied territory in the days leading up to the loans, with government lawyers, accountants, and bureaucrats swarming over its financial statements, production schedules, and supplier invoices. Fritz Henderson and CFO Ray Young were totally at Treasury's command. Bankruptcy attorneys were now on the GM payroll, combing through its gargantuan organization for a.s.sets that might be sold quickly if and when the company descended into Chapter 11.

Rick Wagoner seemed depleted by his experience in Was.h.i.+ngton. Steve Harris fretted about his old friend and boss. "After the hearings," Harris said, "Rick just seemed to lose his confidence." When he reflected on the hearings, Wagoner sounded more hurt than anything. "For an industry that has contributed to the country in so many ways, it was astounding to get this treatment," he said. The politicians had forked over the money when Wall Street came to Was.h.i.+ngton. But Detroit got beat on like a pinata. "The financial guys got a little roughed up," Wagoner said. "But then we came in and it seemed that our industry was held to a radically different standard. The moral of the story is never put yourself in a position where you have to go down there."

It was too late for second-guessing. He'd made the call and GM had to live with it. Industry veterans wondered whether Wagoner was simply too proud or stubborn to have taken GM through bankruptcy two or three years earlier, when financing could have been raised for an orderly reorganization. It didn't matter. There was no semblance of order in the Renaissance Center anymore. Wagoner and his board had taken the first step toward abdicating control of General Motors.

The Obama administration was a.s.sembling a task force of investment bankers and economic advisors to judge the viability plans that GM and Chrysler were sweating to finish before the February 17 deadline. The plans were management's last shot to prove GM could reorganize and one day stand on its own again. Henderson at times felt overwhelmed by the pressure. But when he observed Wagoner, something didn't click. "It's hard to describe his frame of mind," Henderson said. "He was calm. I don't know why, because the business was just going to h.e.l.l."

"I think there is more awareness than ever," Alan Mulally said, "that Ford is on a different path." From a distance, it sure didn't look like that. Ford ended 2008 on a miserable note. It lost nearly $6 billion in the fourth quarter for a grand total of $14.6 billion for the year, its worst annual result ever. But Mulally was so gratified that Ford had been able to walk out of Was.h.i.+ngton without taking loans. Cash was extremely tight, and Ford had to draw down the last $10 billion from its credit lines to sh.o.r.e up its reserves. But Mulally was free to run the business as he and his team saw fit.

His days were consumed with keeping Ford on track and inching its way back to health. To save money, they turned the lights off early, cut the heat in the Gla.s.s House, and reined in white-collar health care insurance and merit pay. Executives took 30 percent pay cuts. All borderline expenses were eliminated.

But Mulally refused to sacrifice any product programs. While Ford's Detroit rivals virtually stopped work on vehicles in the development stage, Ford was gearing up to launch three new models: a forty-mile-per-gallon Fusion hybrid; a small, Euro-styled work van called the Transit Connect; and a shapely new version of the venerable Taurus sedan (the nameplate Mulally refused to give up on).

The One Ford plan hadn't changed a bit. If anything, the fervor to make it work ratcheted up. Every day the senior management team a.s.sessed its progress in its stuffy eleventh-floor conference room, the walls papered with charts and data tracking minute details of upcoming cars, factory changeovers, sales reports, and new technology such as hands-free entertainment systems and consumer-friendly software.

Bill Ford had watched the horror show in Was.h.i.+ngton and felt the resentment building toward his hometown industry. But like Jim Farley, he sensed that the backlash against floundering GM and Chrysler could be a phenomenal a.s.set for Ford if it could deliver on its strategy. "People are frustrated and angry, and I completely understand that," Bill said. "But I'm really excited where we are. In times of great change, there's great opportunity." Ford had already taken advantage of the weakened state of GM and Chrysler. While they were dug in on viability plans, Ford quietly began talks with the union about funding half its retiree health care obligations with stock. The other guys had the government on their backs. Dearborn was calling its own shots.

Responsibility within the Obama administration for the loans to the auto industry was divided between Timothy Geithner, the new Treasury secretary, and Larry Summers, the president's chief economic advisor. Together, they selected the man who would lead the radical restructuring of Detroit's two fallen icons: Steve Rattner, a fifty-six-year-old New York financier and extremely well-connected Democratic Party fund-raiser.

A former New York Times reporter, Rattner had become a millionaire many times over as cofounder of the Quadrangle Group, a highly successful, media-focused private equity firm. Known for his keen intellect and aggressive deal-making skills, Rattner volunteered his talents to the new administration in some financial capacity. Short and slight in stature, with a high, broad forehead, tortoisesh.e.l.l gla.s.ses, and longish sandy hair, Rattner didn't look like the caricature of the cutthroat private equity baron who sliced and diced wayward companies for a living. He was mild-spoken and extremely articulate, and he exuded a sort of boyish enthusiasm for big challenges.

When Geithner called him about taking the top position on the auto task force, Rattner was vacationing with his family in Spain. Initially he was taken aback; he admittedly knew little about the auto industry. But he accepted the post when he realized what a formidable and delicate task had been offered to him. "It was pretty clear that President Obama wanted to own this problem, not outsource the problem," Rattner said. "And this was not a management job. This was a financial restructuring, and that was something I had done a lot of."

Rattner's appointment drew protests from Michigan's congressional delegation because of his glaring lack of experience in the industry. Union leaders also weren't happy that the Obama administration had appointed a Manhattan tyc.o.o.n who lived on Fifth Avenue and traveled in his own private jet to overhaul a gritty, tough-as-nails manufacturing industry. Rattner was more than sensitive to the prejudice and chose Ron Bloom, an investment banker with close ties to the national steelworkers union, as his chief deputy.

An easygoing Harvard Business School grad with a hangdog look and a crew cut, Bloom had been through some bruising restructuring battles in the steel industry. His experience would serve him well as the point man with the UAW. "You should know that my first goal is to preserve as many jobs as possible," Bloom told Rattner.

The rest of the task force came together from an ad hoc group eager to be part of the excitement and verve of the new presidential administration. Key members included another Wall Street banker, Harry Wilson; a top-notch bankruptcy attorney, Matt Feldman; and a thirty-one-year-old public policy expert, Brian Deese. Working out of bare-bones offices in the Treasury Department, the team started a feverish review of the balance sheets, organizational structures, and operations of GM and Chrysler.

Rattner's primary responsibility was first to dissect the problem, then recommend solutions. The president, of course, had the final say on whatever the government did. But Rattner had to have a reasonable expectation that dragging two giant auto companies through the bankruptcy process could turn them into viable, healthy compet.i.tors. It wasn't long before Rattner sized up the situation before him. "I thought bankruptcy was highly likely from the moment I started looking at this stuff," he said.

But he had to proceed cautiously. Wagoner & Co. had warned many times that consumers would flat-out shun cars made by a bankrupt company. Plus, the workers at GM and Chrysler were punch-drunk from plant closings and job losses. The cascade of cutbacks had created a culture of suspicion and constant worry. So many companies that went bankrupt never made it out (Delphi so far being one obvious example). How could General Motors, with all its image problems and shortcomings in the marketplace, recover from the dreaded stigma of bankruptcy?

But Rattner and his colleagues figured that Chapter 11 was the only legal tool sharp enough to extract the enormous concessions that GM and Chrysler had to get from the United Auto Workers, their lenders, their dealers, and their creditors. The thought of ushering GM into federal court kept Rattner awake nights in his rented Was.h.i.+ngton condo. "I couldn't see how you could restructure this company out of bankruptcy," he said. "And I was terrified about what would happen in bankruptcy."

GM and Chrysler limped into their negotiations with the union and their big lenders. General Motors had no leverage whatsoever with its bondholders and no way to get them to accept stock or warrants in return for cutting $27 billion in debt by two-thirds. Similarly, Chrysler could not convince its banks to budge off the nearly $7 billion still owed to them.

Gettelfinger was biding his time. He was negotiating a VEBA deal with Ford before he would give one to its two wounded compet.i.tors. Until they had deals on health care and debt, GM and Chrysler couldn't be in compliance with two critical conditions of their TARP loans. And when they filed their viability plans on February 17, the companies proved once and for all that their businesses had completely hit bottom.

The Bush administration had given GM $13.4 billion in loans. Now General Motors said in its reorganization plan that it needed an additional $16.6 billion. In return, the company promised to cut and cut and cut-eliminate forty-seven thousand more jobs, close five additional factories, sell or phase out three brands (Hummer, Saturn, Saab), downsize the Pontiac division, and slash its dealers by the thousands. These actions, it swore, would finally make it a compet.i.tive auto company.

But if it didn't get more federal aid, the only alternative for GM was bankruptcy. That, however, would be way more expensive. GM estimated it would need an astonis.h.i.+ng $100 billion in debtor-in-possession financing to emerge from Chapter 11. And as far as the company was concerned, the only source of those funds was the U.S. government. It was quite an ugly choice: pony up more bailout money or pay for the most costly bankruptcy in corporate history.

The numbers were staggering. But even more difficult to digest were GM's financial projections. According to the company's plan, it would swing from a huge cash shortfall to a surplus in just three years. How it would manage that was unclear. Skeptics wondered if the company could be trusted with another dollar of taxpayer money.

"Where does this end?" said Senator Corker. "A lot of tough questions need to be asked."

Fritz Henderson was confident the additional loan money would be enough to carry it through to prosperity-maybe. "There are no guarantees in life," he told a.n.a.lysts in a conference call. "But I do think we have sized the funding requirements correctly."

The Chrysler viability plan was strangely modest. The company wanted an additional $5 billion on top of the $4 billion it had already received. But its plan didn't involve more plant closings or job cuts. Only a handful of older models would be dropped. Its comeback seemed to hinge on selling a.s.sets, reducing fixed costs, and hooking up with Fiat. In fact, its whole product strategy seemed to rely on forging a vague alliance with Sergio Marchionne and the Italians.

But Chrysler was clear on one point: if the company didn't get additional federal loans, it would instantly file for Chapter 11. Financing a bankruptcy would cost an estimated $24 billion. And with no government money to pay for it, Chrysler would simply have to liquidate, putting forty thousand U.S. employees out of work overnight, shuttering more than three thousand dealers.h.i.+ps, and wreaking havoc on its supply base. The government had been given two options: either prop up Chrysler with more loans or risk catastrophic job losses and a tide of misery rippling through the entire U.S. economy.

Steve Rattner's first reaction to the GM plan was disbelief. This was a professional restructuring job? Some of the calculations and projections that GM had submitted seemed off the wall. "These numbers are ridiculous," he said. "'If you give us this much money, we're going to be fine'? Oh no, you're not."