Once Upon a Car Part 5

To Lutz, the Fortune piece summed up everything that was wrong with these supposedly astute outsiders-Girsky, York, the Wall Street crowd-who were predicting doom for GM. The outsiders just did not understand how rapidly GM's products were improving, or how confident he, Wagoner, and all the other executives were that the turnaround was on track. In Lutz's mind, to suggest that GM was careening toward bankruptcy was beyond irresponsible. "We know exactly what our cash flow is, and we know exactly what vehicles we are introducing and when," he said. "We have never discussed bankruptcy. It has never been an option."

He would be seventy-four on February 12 (two years younger than "kindly old" Carol Loomis), but Lutz brimmed with energy and enthusiasm on his mission to invigorate GM's product lineup. Under his direction, GM was standardizing the basic underpinnings of its cars, allowing it to save billions while still offering distinct models tailored for different regions of the world. And outside North America, GM was growing. The company had just set sales records in Asia, Europe, and South America, and was the top automaker in China.

It was true that most of its products sold in the United States were money losers. But the tide was gradually turning. No one in Detroit knew more about creating automobiles than Bob Lutz, and he had empowered GM's designers and challenged them to take chances and be creative. He considered cars things of beauty, objects of desire, emotional expressions carved in sheet metal. He constantly fought and won internal battles for funding to upgrade the leather, plastic, and wood-grain finishes for seats, steering wheels, and instrument panels.

And he stubbornly refused to cut any corners on the engines, transmissions, and suspension systems that made driving enjoyable. A highly skilled driver himself as well as an accomplished pilot, Lutz personally tested every vehicle GM produced, from the early prototypes through the final production models. It wasn't unusual to find Lutz, in his bomber jacket and aviator shades, on the track at the GM proving grounds, putting a new car through its paces at a hundred miles per hour and then picking apart its flaws with teams of engineers afterward.

Lutz was proud of the newest models that GM was delivering to dealer showrooms-the sleek Buick Lucerne sedan, the European-styled Saturn Aura, the supremely rugged Hummer H3 sport-utility. Even the mundane Chevrolets and Pontiacs were improving. GM also had a huge ace in the hole: the upcoming launch in the fall of the new T-900 line of full-size pickups and SUVs. Nothing stirred Lutz's compet.i.tive juices more than the new trucks. Not only would the big vehicles make a lot of money, they would prove that GM could still dominate a key segment of the market and win head-to-head battles with Toyota and Ford. "No matter how you look at it, these full-size sport-utility vehicles and full-size pickup trucks are going to be big revenue generators," Lutz said. "And they are extremely good. People are going to say these are the best trucks ever made."

GM needed the trucks for psychological reasons as well. "At some point, we have to effect a s.h.i.+ft in public perception," Lutz said. The unrelenting onslaught of criticism was, he believed, crippling the company's comeback before it could get started. Lutz loved to talk, and he did plenty of it at auto shows and product events. But he was not the chief executive. He pleaded with Wagoner to get out front and tell the world the truth about GM in the simplest possible terms. Lutz had worked for Lee Iacocca at Chrysler in the 1980s. Although he'd clashed personally with Iacocca, he had great respect for how the charismatic Chrysler chairman could charm and cajole people and, above all, sell cars. General Motors had become the whipping boy for the magazines, newspapers, and talking heads on cable television, and Lutz was sick and tired of it. Iacocca would have stood up and fought. Why, he asked Wagoner one day, couldn't he?

"Rick, you have got to get out there and explain our mission and the vision of the future," Lutz said.

Wagoner looked at him like he was nuts. "Well, Bob, that's really your job, to talk about the products," he said. "You do that. Everybody knows that good old Bob Lutz can say things the rest of us can't."

Lutz appreciated the compliment. But Wagoner was missing the point. "I know I do it well and I've been effective with the media for a long time," he said. "But I'm not the CEO. I'm not the number one guy. I can't be the symbol of the company out there, because I'm number two or number three. It has to come from you."

It was an argument Lutz was destined to lose every time. Wagoner was careful, organized, and thoughtful, not fiery, pa.s.sionate, or combative. He had developed a stock answer whenever he was asked why General Motors didn't do something really dramatic to show it grasped the depths of its dilemma.

"We are trying to fix problems, not make headlines," he said. "And we really are trying."

Chapter Twelve.

The first General Motors plant to shut down was Oklahoma City. Not even ninety days had pa.s.sed since Rick Wagoner's promise to start cutting production. This was a stunningly swift execution. Oklahoma City had lost an internal compet.i.tion with the GM a.s.sembly plant in Moraine, Ohio. Both factories made the Chevrolet Trailblazer and the GMC Envoy-st.u.r.dy but out-of-date, truck-based sport-utility vehicles that got fifteen miles to the gallon and were piling up on dealer lots. If there was one market segment in which GM was grossly overproducing, it was midsize SUVs. The company could no longer afford two a.s.sembly plants making a half million Trailblazers and Envoys a year when it could barely sell half that many.

Still, it was a tough bullet to bite. GM had made enormous profits just a few years earlier on these very same models. The Trailblazer would go down as one of GM's bestselling vehicles ever. Along with the Ford Explorer and Chrysler's Jeep Grand Cherokee, the muscular Trailblazer popularized high-riding SUVs for the ma.s.ses. But its time was over. The hottest new sport-utilities were smaller, lighter, less powerful crossovers derived from pa.s.senger-car platforms and made by Toyota and Honda. They got considerably better gas mileage and looked a lot fresher than a product GM had been milking for more than a decade.

The twenty-two hundred hourly workers in Oklahoma City were stunned to learn they were the first casualties of GM's radical downsizing. There was no phone call or visit from any senior executive from Detroit. The only explanation came during a "special employee broadcast" by Rick Wagoner. "These a.s.sembly capacity reductions," he said, "were determined based on comprehensive and detailed consideration of all the relevant factors, including product life cycles, age and state of facilities, market volumes, and others." In other words, GM didn't need OKC anymore because its product was obsolete and the company had nothing new to put there.

The automaker had closed plants before, but usually it negotiated the terms and timing with the UAW. This one, however, caught the union totally off guard. "At this time, we do not have answers for all the questions that affect our future at General Motors" was the official response on the Local 1999 website. Workers were similarly blindsided. "I left on Thursday to go on vacation and my pastor called and said, 'Hey, Bobby, I'm sorry about your job,'" said Bobby Millsap, who was hired on the day the plant opened in 1979. "I thought he was messing with me. You could have knocked me over with a feather."

Oklahoma City was one of the most modern and prolific automobile a.s.sembly plants in the United States. Spread out over 430 acres, the factory had nearly 4 million square feet of manufacturing s.p.a.ce under one roof. Over twenty-seven years, the plant had built 5.6 million cars and trucks for GM's signature brands: Chevrolet, Pontiac, Oldsmobile, Buick, and GMC. In 2001, the plant was a.s.signed its first SUVs-the bulked-up, seven-pa.s.senger Trailblazer EXT and its upscale twin, the Envoy XL. The company invested a jaw-dropping $700 million to revamp the entire factory, including constructing a brand-new, state-of-the-art paint shop.

GM management had good reason to trust OKC with its bellwether SUVs. The workforce was among the most experienced and skilled of any in its vast manufacturing network. The plant consistently won awards for quality and productivity, and its employees were a tight-knit bunch renowned for their community spirit. When the Alfred P. Murrah Federal Building in downtown Oklahoma City was bombed in 1995, killing 168 people and wounding scores of others, an entire s.h.i.+ft of GM workers rushed to the site to help in the rescue efforts.

The manufacturing executives back in Detroit had valued the plant highly. It was a fallacy to think of General Motors as simply a Rust Belt automaker saddled with decrepit factories in crumbling urban centers in the industrial Midwest. Few people knew that some of its best a.s.sembly plants were in Kansas, Texas, Georgia, and Oklahoma. Here, in the country's heartland, Big Three jobs were prized and consumers still embraced Detroit's products, especially its trucks.

Plants such as Oklahoma City were a big reason why GM was far and away the largest automaker in the United States. A year after the new paint shop was installed, a tornado ripped the building apart, immediately shutting down the whole factory. But GM wasn't about to let OKC miss a beat. Within days, the company brought in outdoor lighting, heavy cranes, and a battalion of contractors to work around the clock to repair the damage. In less than two months, it was running at full speed again.

No wonder employees were shocked. Their factory not only met expectations but exceeded them. Yet their jobs were being sacrificed in a "restructuring" to improve GM's sagging bottom line. The OKC workers didn't make shoddy products. They had nothing to do with consumers getting tired of Trailblazers and Envoys. But there were hundreds gathering dust outside their plant, a huge parking lot filled with just-built $30,000 SUVs that n.o.body wanted.

"I have a ten-year-old son," said Ray Owens, a supervisor in the plant's customer call center. "My son understands that if people don't buy cars, then Daddy doesn't have a job." Many of the workers joined GM right out of high school, when the company appeared indestructible. The j.a.panese were the threat back then, but now the compet.i.tion seemed to spring from every corner of the globe. "We in America can no longer compete with workers in China, Thailand, even India," said Lori Darks, who fixed paint chips and scratches on vehicles at the end of the a.s.sembly line. "We try to do it with a quality performance, but it's uphill."

There was a sense of resignation when the closing was announced, like the glory days had become distant memories overnight. "We're at a crossroads right now," said Darrell Mason, who was twenty years old when he was hired in 1979, and had worked at the plant during its entire existence. "You see where the middle cla.s.s is going now," he said. "You see where you may be the last of the breed. We consider ourselves very lucky. Our kids and grandkids are the ones we're worried about."

An a.s.sembly plant is like a small, self-contained city. Each factory job generates anywhere from three to five others at parts suppliers, trucking companies, and the gas stations, diners, and retail stores that cater to the workforce. Some plants have their own child care centers and exercise facilities. The extraordinary health care plans enjoyed by union workers attract doctors, chiropractors, optometrists, and dentists to nearby strip malls. The overall economic impact is substantial. In Oklahoma City's case, the plant was among the biggest corporate taxpayers in the entire state.

And whether it's on the tough streets of Flint, Michigan, or the wide-open s.p.a.ces off a freeway exit in central Oklahoma, an a.s.sembly plant is a community unto itself. Working alongside another person for years-welding metal, bolting parts together, installing winds.h.i.+elds-forms unique bonds. There's nothing easy about the job. It can be mind-numbingly repet.i.tive, stressful on the back and shoulders and knees, an eight-hour-long daily grind. No question the work paid extremely well-$27 an hour for an a.s.sembler on up to $33 an hour for a skilled tradesman. The benefits were excellent, and after thirty years a worker could retire with a generous pension. What outsiders could not appreciate, though, were the feelings of pride and togetherness and shared history. Twenty-seven years in the OKC plant covered an awful lot of birthdays, anniversaries, high school graduations, and family funerals. And every s.h.i.+ny new SUV that rolled off the line was the tangible result of that spirit and collective energy.

Then, as if someone had flicked a switch in Detroit, it was all over. Despite a lobbying effort led by Oklahoma governor Brad Henry and the state's offer of a $200 million package of incentives, GM would not reconsider its decision. "I asked them if there was anything at all we could do, any discussion that we could have to keep this plant open," Henry told a local newspaper, the Journal Record. "And they said, unfortunately, no."

Once the shock wore off, the sorrow and frustration kicked in. "There was nothing we did to shut this plant down," said Nanette Relerford, who worked in the paint shop. "We have been through tornados. We worked the Murrah building. We fed the firefighters. We do give. It would be good if GM had a design department that would give us vehicles that sell."

Lori Darks fought back tears talking about life in the plant. "We all grew up together," she said. "We raised our families together, celebrated together, and cried together. Now we're going through the different steps of death and dying. Basically, you accept it."

To help cope, they prayed. On an overcast Sat.u.r.day afternoon in mid-February, more than three hundred GM workers and their families and friends filed into the New Dimensions Ministry Church for an interfaith wors.h.i.+p service called "Through the Pain, Change and Fear, by Faith to Hope." There wasn't an empty seat in the cavernous, cream-colored building. Clergy from five different faiths-Christian, Jewish, Muslim, Baha'i, and Unitarian-partic.i.p.ated in the service. One of the organizers was Bobby Millsap, who, besides being an autoworker, also served as the chaplain for UAW Local 1999. A soft-spoken, forty-seven-year-old ordained minister, Millsap said employees had repeatedly reached out to him in the plant for spiritual guidance. "People asked me to pray for a new product and that GM will make the right decisions for the employees," he said. "I told them that nothing is impossible to those that believe. That's what the Bible says. You have to have hope."

There were hymns and litanies and scripture readings, and at the end the congregation stood and sang "Solidarity Forever," the traditional anthem of organized labor, set to the tune of "The Battle Hymn of the Republic." The workers seemed to sing one stanza defiantly louder, as though they were trying to be heard a thousand miles away at GM headquarters in Detroit: They have taken untold millions that they never toiled to earn, But without our brain and muscle not a single wheel can turn, We can break their haughty power, gain our freedom when we learn That the union makes us strong.

On February 20, Oklahoma City built its last vehicle, a "summit white" Trailblazer EXT with seventeen-inch cast-aluminum wheels and a 291-horsepower, six-cylinder engine. It went straight from the a.s.sembly line to the parking lot, joining the rest of the unsold inventory. Some employees brought cameras to take sentimental photographs of their coworkers and their workstations.

"Today is a real sad day," said Bruce Arnold, another veteran of twenty-seven years on the OKC line. "All I can say is thank G.o.d for the UAW."

He wasn't kidding. Because even though the plant was about to be mothballed permanently, the workers weren't going anywhere. In a week they would all report back to the factory and clock in, just as they had for years. The difference was they wouldn't be coming to work. They would be headed to the jobs bank-and paid not to work.

If there was one single facet of Detroit's decline that totally confounded people outside the industry, it was the jobs bank. The Big Three and the union had created it in the 1984 labor contract as an "employee-development bank." Back then, it was designed as a temporary repository for laid-off workers so they could be retrained for new positions in higher-tech factories. For the UAW, the jobs bank was an ironclad means to provide security for its members when the industry hit a rough patch. What it evolved into, though, was a holding bin for excess workers.

When union workers were laid off, they first went on unemployment. The auto companies were then required by the UAW contract to sweeten the government check with payments that guaranteed employees 95 percent of their wages for forty-eight weeks. Once those benefits expired, they entered the jobs bank. In theory, they were supposed to stay in the bank-and keep getting paid-until their old plant restarted or a job became available in another factory within a fifty-mile radius.

But because positions rarely opened up in plants nearby, many remained in the bank for years. It was a weird deal all around. As part of the job bank program, workers had to fulfill obligations, and they could meet these requirements by volunteering for company-approved community service-schools, charities, homeless shelters, meals-on-wheels.

Only a small percentage chose that option. Most reported each day to some building where they punched a clock and then did nothing except pa.s.s the time. Supervisors kept a close eye on their activities. They were allowed to watch television, read, do crossword puzzles, or work on a computer. But they had to sign out to use the bathroom or go to lunch, and they were not permitted to sleep or play cards, even though workers in Michigan could leave to take cla.s.ses on dealing blackjack and poker in hopes of landing jobs at one of the state's new casinos.

Detroit supported dozens of jobs banks across the country, in virtually every place where a plant had closed since the mid-1980s. Some GM workers in Van Nuys, California, had been in the program for twelve years. In Flint, laid-off Delphi workers showed up at 6:00 A.M. at an old storage shed on the city's east side. Ironically, the building was on the site of the factory where workers staged the famous 1936 sit-down strike that forced General Motors to recognize and bargain with the fledgling United Auto Workers union. Now, on the same spot seventy years later, UAW members read newspapers, played Scrabble, and watched DVDs to earn their paychecks. One laid-off worker who had been in the Flint facility for six years said the monotony was excruciating. "I feel like I'm literally in a vegetative state," Judy Rowe told a reporter from the Chicago Tribune. "I have nothing to think about."

Needless to say, there wasn't much sympathy for her plight outside the UAW. With the addition of the twenty-two hundred workers in Oklahoma City (who went straight to the jobs bank because their plant had no chance of reopening), GM now had nearly eight thousand people in the program. Based on the combined cost of their wages and benefits, the company was spending an estimated $1 billion a year compensating idle employees. Delphi had another four thousand people in the bank; Chrysler had twenty-five hundred; and Ford about a thousand.

Wall Street gagged at the thought of these stumbling, cash-strapped companies paying workers to watch TV all day. "They're basically spending hundreds of millions of dollars and getting nothing for it," said David Healy, an a.n.a.lyst with Burnham Securities. Auto executives refused to say much publicly about the jobs bank, for fear of antagonizing the union. When asked about it at a press conference, Rick Wagoner stated the obvious. "Clearly it's an area of compet.i.tive disadvantage for us," he said.

Only Steve Miller at bankrupt Delphi dared to tackle the issue head-on. In typically blunt fas.h.i.+on, he compared the program to welfare payments built into the cost of a new GM car. "When you buy a Hyundai, you get a satellite radio as your option, but if you buy a Chevrolet, you get social welfare as standard equipment," he said. "Long-term, the customer is going to desert you if you try to price for your social welfare costs."

No issue was more sensitive for Ron Gettelfinger than the jobs bank. The UAW president usually tried to explain its origins, and how the program was meant to offer workers a safe haven when the economy sputtered and car sales dropped. But his words rang hollow. The more money GM lost, the more the media focused on inactive workers complaining of boredom while taking home big paychecks in the jobs bank. Given the financial woes of the Big Three, the program was not only indefensible but fed the growing public perception that the union was bleeding Detroit dry. There was already enough criticism of the UAW that its members were overpaid, its health care plans were too rich, and the vehicles it built weren't as good as the j.a.panese imports.

What's more, Toyota, Honda, and Nissan were making first-rate cars with nonunion American workers in Kentucky, Ohio, and Tennessee. And the so-called transplant factories were thriving. Toyota was about to open a new plant in San Antonio, Texas, to make pickup trucks that would rival the market-leading Ford F-series and Chevrolet Silverado. How could Detroit compete with the juggernaut from j.a.pan if it had to pay people who weren't even working?

The jobs bank had become, in the words of the Wall Street Journal, "Detroit's symbol of dysfunction." GM was choking to death on legacy costs, yet its laid-off workers were lounging around, doing nothing, and making more than $50,000 a year. Gettelfinger started losing patience with reporters who pressed him about it, and began firing questions back. Should workers just be thrown out in the street? What about the millions in bonuses the top executives took home? Were the dedicated men and women in Oklahoma City responsible for GM making too many old-model SUVs?

And the mere mention of Steve Miller and his opinions made Gettelfinger's blood boil. "He didn't come in there to run that company," he snarled. "He came in there to destroy that company. And in destroying the company he's destroying lives and destroying families." To blame Detroit's problems on the jobs bank was unfair, he argued. Those people wouldn't be without work if the companies had made smarter decisions and the federal government didn't let cars from j.a.pan and Korea flood the marketplace. The middle-cla.s.s shouldn't be penalized for the misguided policies of the power brokers in Detroit and Was.h.i.+ngton. Gettelfinger vowed that he would not be bullied into giving up a program that autoworkers needed now more than ever. "That jobs bank," he said on a Detroit radio program, "is not going to go away."

Gettelfinger had more immediate concerns anyway. For weeks he had been in secret negotiations with GM about the buyout packages it would offer workers to leave the company. The offers had to be lucrative enough to entice employees to walk away from the automaker and their health care benefits forever (and stop filling up the jobs bank). And the numbers were staggering. Wagoner had set a target of eliminating thirty thousand jobs, and the only way that could happen was if GM opened the vault.

One proposal on the table was a lump-sum offer of $140,000 to any worker with ten years or more of service. In exchange for the cash, an employee would have to leave GM immediately and waive his or her right to future medical coverage-not an easy choice by any means. The company also wanted to rid itself of workers who already had thirty years of service and were eligible to retire but were still hanging on to their jobs. GM was prepared to give them $35,000 to nudge them out the door with their health care and pensions intact. Half of the company's 113,000 hourly workers in the United States were retirement-eligible or very close to it. The big money being waved in front of them might just be too attractive to pa.s.s up. The rumor mill was already churning in the plants. "I've got a thousand guys ready to go," said Chris "Tiny" Sherwood, president of UAW Local 652 in Lansing, Michigan.

A few days after production ceased in Oklahoma City, rows of tables and chairs were set up inside for the jobs bank. Some workers scrambled to line up volunteer opportunities so they wouldn't have to sit all day in the eerily quiet factory. n.o.body was sure what to expect next. "It could be pretty solemn around here for a while," said Bobby Millsap. Union officials were besieged with questions about the future. Nanette Relerford summed up what was on most people's minds. "A buyout?" she said. "I'll take it."

So far, the buyout talks in Detroit had been surprisingly smooth. One reason was the involvement of Frederick "Fritz" Henderson, who was leading the GM bargaining team. Henderson had been on the job as chief financial officer for less than three months but had quickly become the company's ace troubleshooter. His plate was very full. Wagoner had deputized him to find a buyer for the GMAC financial services division, a supremely delicate task given the size of the business and the potential cash that its sale could generate. Henderson also inherited a mess of accounting problems that were under investigation by the U.S. Securities and Exchange Commission. And he was now GM's point man on Delphi, which by itself could be a full-time responsibility.

But Henderson was handling everything thrown his way. He was forty-seven years old and had been with GM since 1984, rising through the ranks rapidly in North America before making his mark overseas-first as managing director in Brazil, then as president of Latin American operations, head of the Asia-Pacific region, and finally chairman of GM Europe. Henderson was in a business meeting in Amsterdam in December 2005 when Wagoner called and said he wanted him to replace the retiring John Devine as CFO.

"We need you to do this," Wagoner said. At first Henderson protested. He loved running his own operation, and GM Europe was in the middle of a gigantic restructuring of its own. "In the end, what he kept saying was, 'We need you,'" Henderson said. "And so I came back." And once he returned, Henderson was thrust into the middle of GM's biggest challenges. "There was no doubt in my mind," he said, "that this company was in a five-alarm crisis."

In short order, Henderson brought a steady hand to some chaotic situations. He had a different, more informal style than Wagoner. He had been born in Detroit into a GM family, the son of a career sales executive in the Buick division. Short and compact, prematurely bald with a jaunty salt-and-pepper mustache, Henderson displayed a common touch that belied his pinstriped suits and Harvard Business School pedigree. "Fritz always went the extra mile to get everyone engaged," said Tony Cervone, Henderson's top communications executive in Europe. "Even if he already knew the solution, he would go around the table and make sure each person had a chance to contribute."

Henderson had an easy smile and a sense of humor, and clearly didn't take himself too seriously. When he was in Brazil, he danced on the GM float in the raucous Carnival street festival in Rio de Janeiro. During his constant business trips throughout Asia, Europe, and South America, Henderson regularly traveled alone and carried his own bags. He also had a legendary capacity for work, the kind of guy who brought briefcases full of doc.u.ments home at night after spending twelve-hour days in the office. "I'm a realistic guy," he said. "There was a lot of stuff that needed to get done around here. And I liked that. I enjoyed it. I was invigorated by it." To some people inside GM, Henderson came across as c.o.c.ky or too sure of himself. He talked very fast, had an amazing recall of facts and figures, and seemed blessed with inexhaustible energy. "Look, I'm 100 percent focused, and I'm not interested in getting off track," he said. "People appreciate decisiveness. That's why you get the job-to decide."

Henderson was determined to work with Gettelfinger, not fight him. The UAW president didn't much trust GM, and Wagoner did not interact well with the union at all. But the stakes were too high for the mutual animosity to continue. "The relations.h.i.+p with Ron was not good," Henderson said. "Somebody had to build a relations.h.i.+p with him. It ended up being me. I liked Ron. I ended up spending a lot of time with him."

Gettelfinger respected Henderson too-possibly because he wasn't Steve Miller or Rick Wagoner. Whatever the reason, they got down to business on the buyouts. Maybe the union and GM could navigate these troubled waters together and both survive.

Chapter Thirteen.

Where are the market share numbers?"

Jerry York stared across the boardroom at Rick Wagoner. It was his first meeting as a GM director, and already he was putting Wagoner on the spot.

"We can get those for you," Wagoner said.

The other board members just watched. Suddenly the table seemed to have tilted in York's direction. Confronting Wagoner was not typical boardroom behavior. But York was not interested in business as usual.

"My understanding is our market share is down 1.6 percent from a year ago," York said. "I want to know what the numbers are-without the rental sales."

Wagoner nodded and made a note. York took his own notes. The meeting continued. Fritz Henderson gave updates on GMAC, Delphi, and the union buyouts. As he began going over the proposals under discussion with the UAW, York stopped him.

"What's the cash effect of this?" he asked.

That couldn't be calculated until the deal was done, Henderson said. York made another note. As if on cue, other directors did the same. The meeting went on. But the tenor had changed, and nothing in the General Motors boardroom would ever be quite the same again. At one point, Wagoner was asked to leave the room so the outside directors could meet in executive session.

Now York really opened up. He proposed that the board draft hard targets for the management team, paying specific attention to how much cash GM was burning and whether its new products could stem its chronic slide in market share. "The key part here is stabilizing market share," York said. "I want to see a five-year forecast for market share."

George Fisher couldn't argue with York. But the former Motorola and Kodak chief executive officer-Wagoner's staunchest ally on the board-was visibly uncomfortable with how York was setting the agenda. Fisher had the t.i.tle of lead director and usually ran the executive sessions. But York was taking a backseat to no one. He was going to ask pointed questions and demand answers. Some of the other directors liked that immediately.

"There were a lot of board members who were really concerned about cash and cash flow," said John Bryan, a board member for thirteen years. "And one thing about Jerry was he had a lot of knowledge. He knew more about the auto business than the rest of us."

Wagoner commanded a lot of respect in the boardroom. But York firmly believed the chief executive worked for the board, which represented the shareholders, who owned the company. "Jerry was very polite, very cordial," said Bryan. "But it was written all over him that he thought this was a poorly managed company."

After the March 6 meeting ended, York took stock of what he had seen and heard.

"What is missing in this equation is planning," he told a friend in Detroit. "Why did they have to wait until three-quarters of the damage was done to figure out they had to restructure the company?"

He hadn't formed opinions yet about all the other board members. "Looks like there may be five good directors," he said. "But it doesn't look like they have enough information. I was shocked they didn't know what is going on with market share."

York was scrutinizing Wagoner's every move but was withholding judgment on him for now. He suspected that management was doing everything it could to boost revenues and bring down inventory levels, including selling excess production to car rental companies at a discount. That was a bad sign, in his view. He hated the idea that GM was putting a Band-Aid on a fatal wound. "What makes Rick Wagoner tick?" he wondered. "No one knows. It looks like he's pulling out all the stops to make the first-quarter numbers. They haven't pulled back on rentals, and that's one of the big reasons the s.h.i.+t has. .h.i.t the fan. You can only play that game for so long."

York was just beginning to put GM under the microscope. His boss, Kirk Kerkorian, considered himself a long-term investor. But he had zero tolerance for underperformance. If changes were necessary at GM, he expected York to push hard to make them happen as soon as possible. And the quickest way to light a fire under management was by bringing in a new chief executive. "I don't give a f.u.c.k how GM gets fixed," York said. "If Rick Wagoner can do it, fine. If not . . ."

He didn't bother to finish his own sentence.

Wagoner wasn't ruffled by York's aggressive approach. He enjoyed a good working relations.h.i.+p with most of the board. He knew some directors were impatient with GM's progress and were upset by the constant criticism from Wall Street and the media. But he felt they understood the enormity of the task at hand. General Motors was no ordinary company; it was an essential inst.i.tution, a national a.s.set, the backbone of American manufacturing. When terrorists struck the World Trade Center on 9/11, the White House turned to GM to stabilize the economy. And it was Rick Wagoner who stood front and center, launching the "Keep America Rolling" program that offered free financing to car buyers for up to five years. When the country needed help, GM was there.

Now the company was hurting, but Wagoner was convinced it was on the right path. GM would not turn around overnight. It required patience and persistence-something York just did not appear to have. "Jerry would come in and ask for all this data, but never offer a single idea," Wagoner said. "I mean, he's out there telling everybody else all his great ideas, but he won't discuss them with me?"

Above all, Wagoner believed in The Plan. The best and brightest at GM crafted it, and he would not deviate from their course of action. Shrinking North American operations was critical; so was improving and diversifying the product lineup. GM had taken a big step forward on reducing legacy costs with the previous year's health care deal, and Wagoner expected the 2007 labor talks to finish that job. He had an experienced team in place: Bob Lutz was fixing the product, Fritz Henderson was tackling finance and labor issues, Gary Cowger was running manufacturing, and so on down the organization chart.

Best of all, there was huge opportunity to grow overseas. Like his predecessor Jack Smith, Wagoner was certain that the future lay in China, India, Brazil, and all the other exploding markets where General Motors was gaining, not losing, market share. The problems at home made international expansion even more essential. Wagoner relished the compet.i.tion in the emerging markets, where GM was not hamstrung by health care costs, pensions, and legions of entrenched workers. On the morning of March 15, Wagoner boarded a company Gulfstream for a long-planned trip to China and Korea. It turned out to be an inopportune time to leave town.

GM was racing to file its 2005 annual report that night with the Securities and Exchange Commission. This was hardly a routine filing. Mistakes had been made in the previously reported $8.6 billion loss for the year. Because it underestimated the cost of Delphi and the North American restructuring, GM had to swallow the embarra.s.sment of amending the loss to $10.6 billion. But there was more. The SEC was cracking down on how the company accounted for payments to suppliers, forcing it to restate results for the five previous years. The changes weren't substantial. But taken all together, the revisions looked pretty bad. With Henderson's supervision, a team of auditors had combed through millions of doc.u.ments to check for any errors that could taint the annual report. The SEC was digging through GM's books, and the final paperwork had to be perfect.

Then, just hours before the filing, a bombsh.e.l.l landed on Henderson's desk. Somehow cash flow numbers from the GMAC mortgage business had been miscla.s.sified. The auditors were in a panic. "Tell me more," Henderson said sternly. There wasn't time to change the numbers; the entire doc.u.ment needed revisions. GM was facing a midnight deadline, and filing a flawed annual report-on top of the restated losses-would be a disaster. Henderson had to make a decision. He called Wagoner, who had just landed in Korea. "Hey, we can't file today," he told him. "We have to get an extension."

A press release was hastily written. When it went out the next morning, GM's stock dropped like a rock. Wall Street came down hard on Wagoner & Co. "This is likely to take a toll on management's already embattled credibility," said an instant report from Lehman Brothers. But investors' reactions were mild compared to those of the GM board. A number of directors got on a conference call with Wagoner and unloaded. One of the angriest was Phil Laskawy, the retired chief executive of the accounting giant Ernst & Young and chairman of the board's audit committee.

But even George Fisher ripped into Wagoner. GM looked ridiculous, he said, like it couldn't even manage to get a simple annual report in on time. York took the high road. Rather than bash management, he called for an internal investigation. The other directors wholeheartedly agreed.

All Wagoner could do was listen and take it. He left it to Henderson to explain the situation and issue a public defense of GM's integrity. Inside corporate headquarters, people tried to a.s.sess the damage done to the CEO. At best, Wagoner appeared out of touch for going out of the country under the circ.u.mstances. Momentum had suddenly s.h.i.+fted to his critics, particularly York. "The perception of Jerry [had] changed from a guy who wants to raid the GM treasury to a sharp-minded source of accountability," said Steve Girsky.

The next day, Wagoner cut short his trip to Asia and flew back to Detroit. He returned to a rash of media coverage attacking him and praising York as a driving force for change. This was a turning point. Until now, the criticisms of GM had centered on its strategy, focus, and sense of urgency. But the accounting mess triggered questions about competence and responsibility, the very qualities Wagoner's defenders often cited about him. The GM directors were burning up the phone lines talking to each other, worrying about damage control, and reaching out to York for direction. Management desperately needed some positive news.

Thankfully, Fritz Henderson and the labor team delivered. On March 22, GM announced a deal with the UAW to offer buyouts to all of the company's 113,000 union members as well as 13,000 Delphi workers. The agreement would go a long way toward cutting the U.S. workforce down to size. But it wouldn't come cheap. GM would offer $35,000 to retirement-eligible employees to leave and up to $140,000 for some workers to cut all their ties, including health benefits. The program represented one of the biggest employee buyouts ever made by an American corporation. All told, GM estimated the buyouts would cost between $2 billion and $4.6 billion-an astonis.h.i.+ng amount for a public corporation to downsize blue-collar workers.

It also marked a symbolic break with GM's storied past. Thousands of employees who joined the company at its peak in the 1970s were expected to move on. Thinning the ranks was also intended to take some of the sting out of future plant closings and stop the flow of laid-off workers into the jobs bank. Overall, the buyouts would mark a pivotal step forward in the long-overdue restructuring of GM. Wagoner's quotes led the press release, even though he had not spent a single day in the labor talks. "We are pleased that this agreement will help fulfill an important objective," he said.

The buyout deal was followed in rapid succession by other moves, including plans to slash hundreds of white-collar jobs and the sale of GMAC's commercial real estate unit. The sales executive Mark LaNeve called an unusual press conference to say GM was now backing away from unprofitable sales to rental fleets. "We are taking some pretty painful and necessary steps to run this business the right way," LaNeve said. He added, almost apologetically, that the company was also weaning itself off big discounts to move inventory. "We have learned our lesson," he said.

York was watching it all carefully. He had begun holding deep-dive meetings all over town as he dug into GM's operations. He sat down with Ron Gettelfinger one day, then the GM labor negotiators the next. He had a long one-on-one with Bob Lutz, whom he knew well from their days together at Chrysler in the 1980s. Lutz didn't trust York and definitely didn't want him meddling in product development. But he couldn't hide his own frustrations with GM's rigid culture and bureaucracy. He described Wagoner as a good guy who sweated the details but too often missed the big picture. "It's basically what's been wrong with GM for the past thirty years," Lutz said. "It's all a.n.a.lytical, businesslike and risk avoidance-keep everything on an even keel at all costs."

One afternoon York drove out to the tech center to look over new vehicles. He wasn't pleased with what he found. "It was like two separate companies," he said. "They had these terrific trucks and SUVs, and these cars that made you want to throw up, with all these chintzy materials and ugly plastic parts." Then he talked with a half dozen senior people overseeing engines and transmissions. York loved getting under the hood of an automobile. He had actually started in the industry at GM in the 1960s, working on Pontiac muscle cars. And he was very impressed when he saw all the new technology in the engineering labs. But the tone of the presentation was strangely flat. There was all this great hardware, but n.o.body in the room seemed very enthusiastic about it. York pulled aside Tom Stephens, the head of the global power train division. "Tom," York said, "can you come outside with me for a minute while I have a cigarette?"

Once they were alone, York shared his observations.

"What I'm finding are very intelligent, educated, knowledgeable people who know what they're doing," York said. "But I'm not seeing the fire in the belly."

Stephens, a tall, burly engineer with a reddish beard, didn't mince words. "If you could work in this place for one f.u.c.king day, you would understand," he said. "It is so bureaucratic, no decisions ever get made."

York was beginning to build arguments for a change at the top. He sensed Wagoner had never been more vulnerable, and he stoked the growing concerns about his leaders.h.i.+p. He quietly confided his doubts about Wagoner to influential journalists, stock a.n.a.lysts, inst.i.tutional investors, and the board members he thought shared his views-John Bryan, Phil Laskawy, Erskine Bowles, Kent Kresa.

When it came to a.s.sessing Wagoner, York could be very convincing. "Let's say Rick had the same track record at Ford over the past six years as he's had at GM," he said. "Would he be a candidate to run GM? I don't think so." York was a bit of a chameleon. With his blue blazers and turtleneck sweaters, he came across as an intellectual with business ac.u.men, someone who did his homework and thought matters all the way through. But there was an earthy side to the thrice-married, chain-smoking, martini-drinking southerner who kept a .357 Magnum under the front seat of his SUV ("Just in case," he explained, "somebody wants to f.u.c.k with me"). That Jerry York could be pretty blunt about General Motors and Rick Wagoner, its courtly chairman and chief executive officer. "GM executives are smart, pleasant, well-dressed, well-groomed," he said. "But there's not one ounce of killer instinct." No one would ever accuse York of lacking a killer instinct. He smelled blood and was ready to make his move.