Once Upon a Car.

The Fall and Resurrection of America's Big.

Three Automakers-GM, Ford, and Chrysler.

Bill Vlasic.

Chapter One.

Larry Buhl had been planning this rendezvous for months, and today was finally the day.

It was the second week in January, and the 2005 North American International Auto Show was in full swing in downtown Detroit. The Cobo Center convention floor, bigger than a dozen football fields, was a ma.s.s of people roaming like herds among the exhibits of the world's biggest automakers. The elaborate displays of the hometown giants, General Motors and Ford, owned one side of the hall. The German luxury brands Mercedes-Benz and BMW anch.o.r.ed the other end.

And somewhere in the middle was the man Buhl was looking for.

He walked along the carpeted paths between the million-dollar show stands, each one reflecting the company behind it-sleek and futuristic at Honda and Nissan, lots of chrome and bright colors at Dodge and Chrysler, stark backdrops and pretty women in slinky dresses at Ferrari and Lamborghini. Cars of every size and shape were bathed in bright spotlights, polished and posed for the hordes of journalists and camera crews and auto executives that swarmed around the hall.

Buhl felt right at home. He lived in Connecticut but had grown up just down the road in Grosse Pointe, Michigan. He had been going to the show for years. It was like an extension of the holidays in Detroit-Christmas, New Year's, auto show. It was also the perfect place to blend into a crowd and meet someone unnoticed. Buhl crossed the convention floor, took a turn behind the man-made mountain with a Jeep hanging off it, made a left at the Toyota exhibit, and spied the smallest, plainest stand in the entire place-three quirky little cars surrounded by college-age sales reps in polo shirts and khakis. And there, working by the red Scion sign, was Jim Farley.

Since last summer, Buhl had been trying to set up a meeting between Farley, a rising executive at Toyota and head of its new Scion division, and one of Buhl's oldest friends, William Clay Ford Jr., the chairman and chief executive officer of the Ford Motor Company. The idea came to Buhl during a conversation with Farley's father on a golf course in northern Michigan, where the Farley and Buhl families had owned vacation homes for years. "Something struck me when I saw Jim's dad," Buhl recalled. "I thought Ford could really use a guy like Jim."

Larry Buhl had known Bill Ford since they were kids. They went to private schools together, played the same sports, socialized throughout college, and stayed close into their mid-forties. One went on to become a successful entrepreneur buying and selling specialty metals on the East Coast. The other became the leader of the second-biggest car company in the world.

Buhl cherished their bond, but lately he had been worried about his friend. He saw what the pressure of running the Ford Motor Company, his family's business for more than a hundred years, was doing to Bill. Executives came and went at Ford headquarters, but none of them was able to help Bill stave off the flood of Toyotas, Hondas, and other foreign cars that were relentlessly beating Ford in the market. Buhl saw Bill's spirits sag when they talked about it. "It's too much for you," he kept telling him. "How can you shoulder all of this responsibility yourself?"

What Ford needed was fresh blood. Buhl would never be so presumptuous as to suggest to Bill that he hire Jim Farley. But if he could get the two of them together, who knew what might happen? When he brought it up, Bill said sure, he was open to it. It was a little trickier to convince Farley. Buhl's brother Robbie, a professional race car driver and fellow car fanatic, had been tight with Farley for years. Still, when Buhl called Farley, he was cool to the idea of sitting down with anyone at one of Toyota's biggest compet.i.tors.

"I'm not interested in going anyplace," Farley said. "I'm really happy at Toyota."

"Come on," Buhl said. "I'm just talking about introducing you to a friend of mine."

"I don't feel comfortable about this," Farley said. "Things are going so well for us, and for me."

"You have to meet him," Buhl said.

"Why?"

"Because," Buhl said, "it's good for you."

Now as he walked toward the Scion stand, Buhl still didn't know if Farley would ever consider leaving Toyota. What he did know was that Jim Farley could sell cars as well as anyone on the planet.

And he was proving it every day. In just two years, Farley had grown Toyota's new Scion brand, created specifically for younger buyers, from zero sales in the United States to 100,000 vehicles a year. His bosses in j.a.pan and in Los Angeles had entrusted him to somehow make bland and reliable Toyota hip, and he embraced the challenge. Farley took Scion cars to rock concerts, street festivals, and college campuses-anywhere that Generation Y hung out. He was constantly on the road, setting up Scion showrooms inside existing Toyota dealerships, and making them cool, pressure-free boutiques for these interesting little j.a.panese cars with funky designs and small engines.

Farley inhabited the job completely-hanging out with twentysomething trendsetters on the coasts, learning why they chose their favorite products, from computers to clothes to cars. "You need to love your customer, feel their joy, understand their pain," he said. "You have to get so close to them you can smell their breath."

But as sensitive and idealistic as he sounded, Farley had an edge to him. Other automakers were the enemy vying for the same turf, and Farley would never give an inch. When he heard that Bob Lutz, the vice chairman of General Motors, had called the s...o...b..x-shaped Scion xB "weird-looking," those were fighting words. "I could care less about Detroit," Farley said. "Give me a break. Detroit got its a.s.s kicked trying to market to kids."

At the Scion stand, Farley was in his element-chatting up reporters, showing off the cars, greeting visitors. With a mop of brown hair flopped over his forehead and wearing a suit that looked just a size too big, Farley seemed younger than his forty-two years. He also was having way more fun than the b.u.t.toned-down, deadly serious executives holding court at the other displays. The media flocked to him, and he rarely disappointed. He was provocative, blunt, and unafraid to criticize an older generation's view of today's young consumer. "These kids are not Camaro buyers from the seventies being reincarnated," he said. "These people are sharp. They have higher expectations." He said it all with a mischievous smile that called to mind his late cousin, the comedian Chris Farley of Sat.u.r.day Night Live fame. He even sounded like Chris, especially when he laughed.

When he saw Buhl walking up, Farley greeted him warmly, like the old family friend he was. They walked across the convention floor together and into the busy hallway dominated by a big bronze statue of the boxer Joe Louis, the embodiment of Motor City muscle. The second they entered the parking garage, Farley started shivering, the bitter chill of January in Detroit a reality check for a guy who lived and worked in Southern California. They hustled to Buhl's car and headed out onto Michigan Avenue, six lanes of blacktop bisecting some of the city's bleakest neighborhoods, and into the adjoining community of Dearborn, the home of the Ford Motor Company.

Farley was quiet as they pa.s.sed the falafel joints, strip clubs, and discount stores that lined the wide avenue. In the distance he could see the belching smokestacks of Ford's famous Rouge a.s.sembly complex, stretching more than a mile long and wide, with dozens of factories, some dating back to the 1920s. The heavy gray cloud cover seemed to sit on top of the buildings, and everything looked frozen solid. I'm from Santa Monica, I work in Torrance, I go to Toyota City in j.a.pan, Farley said to himself. That's my auto industry. This is just so . . . old.

Why would he want to meet anybody at Ford? Farley lived and breathed Toyota. He had loved the company from the day he joined it fifteen years earlier, when Toyota was an underdog fighting for respect in the American market. Farley had basically devoted his life to winning customers away from what he saw as declining, inferior carmakers such as Ford. To Farley, the car business was a highly refined arena of combat, and he had no doubt he was on the winning side. "We're the good guys, the ones wearing the white hats," he said. Farley believed that Toyota made the safest and most sensible, affordable, and fuel-efficient cars in the world. Ford was a dinosaur that lived on an unsustainable diet of gas-guzzling pickup trucks and monster SUVs. There was no question which company was growing and which one was fading. In a few days the final numbers for 2004 would make it official. Toyota had just pa.s.sed Ford in global sales and was fast closing in on the number one spot, held for more than seventy years by the biggest of Detroit's Big Three, General Motors.

When he agreed to this meeting, Farley had made Buhl promise that it would be in secret, far from the auto show and certainly not at Ford's corporate headquarters. It wasn't exactly treasonous for an up-and-coming Toyota exec to get to know the major players in Detroit better, and there was no one bigger in Detroit than Bill Ford. But Farley was a little worried that someone would recognize him and that word might get back to his colleagues at Toyota.

He relaxed when they arrived at the spot for this clandestine get-together-the sprawling $35 million headquarters and training camp that Bill Ford's father, William Clay Ford Sr., had built for his beloved Detroit Lions football team in the suburban city of Allen Park. The Lions were never doing much in January. Their season had ended weeks earlier, as usual, with a losing record and another year in which they were shut out of the playoffs. The place was pretty quiet with all the players gone. At least, Farley thought, no one would see him here. They walked in the main entrance and checked in at the desk in front of a wall-size mural of great Lions players of the past. As they approached the executive offices, Buhl started getting a little nervous. This was, after all, his idea. Should he just make introductions and offer to wait outside? He suddenly realized he didn't know Farley as well as he knew Bill.

Just then, Bill Ford bounded out of his office to greet them. Farley was immediately struck by how young he was-just five years older than him-and how animated and friendly. Bill was of average height and trim like a runner, his custom-tailored blue suit accenting strikingly blue eyes. He had a way of talking fast, like he couldn't wait to share an idea or a story. The three of them sat down and, in a flash, Bill was talking about Ford-its history, its people, and how much it meant to him. "The pa.s.sion I have for this company is making people's lives better," he said. "It's up to us, up to me, to look to the future."

Farley just listened as Bill went on about his family-which had absolute power over Ford through its special voting stock-and its unwavering commitment to the car business.

"We've definitely taken our lumps, but it's never been about the financial investment," Bill said. "We're in it for the long term."

Buhl kept eyeing Farley, who seemed transfixed. He could sense Farley's mind racing, waiting for the right opportunity to jump into the conversation. When Bill finally asked him about his new Scion job, Farley was a bit defensive at first.

"You know, I've been with Toyota for fifteen years," he said. "I've been in marketing and sales in Europe. I was the first product planner for Lexus. I laid out the whole product plan for Lexus with the engineering team in j.a.pan."

Now Bill was the attentive one, nodding and asking follow-up questions and probing for more information. After a few minutes, Farley felt completely at ease. He had met a lot of auto executives in his career, but Bill was not like any of them. "It wasn't like he was happy-go-lucky, but he had a joie de vivre about him," Farley said later. "He loved certain things."

When the two of them started comparing their favorite cla.s.sic cars, in particular the Ford Mustang, Buhl couldn't help but smile. I've never seen such an instant rapport, he thought. It's just two guys talking about their pa.s.sion for automobiles and the business.

The discussion turned to marketing, Farley's specialty, and Bill made a joke about Ford's latest generic advertising campaign, "Built for the Road Ahead." Farley had to laugh. He and his Toyota buddies thought it was one of the lamest ad slogans they'd ever heard.

Then, out of the blue, Bill popped the question. "What would you do if you were running it?" he asked Farley.

Okay, Farley thought, here's the sales pitch. "Well, I'm not interested in going to Ford," he said.

Bill acted as if he hadn't heard him.

"You know, I need help," he said softly. "We're looking for someone who can help."

Farley was taken aback. He wasn't sure he'd heard him right. Bill Ford was asking for his help? There was vulnerability in his voice, a raw honesty that Farley hadn't antic.i.p.ated. He wondered where the pressure was, the hard sell, the lucrative financial carrot he'd expected to be dangled to lure him to Ford. But it never came.

The hour pa.s.sed quickly, and Buhl barely said a word. When they all got up and shook hands at the end, Bill held his grip with Farley a little long, then pulled a card from his pocket.

"I think there's a place for you here," he said to Farley. "Here's my number. Let's stay in touch. I want you to call me. I want you to know that I'm here whenever you need me."

Buhl did most of the talking on the drive back downtown, hardly able to contain his enthusiasm over how well it all had gone. But Farley didn't hear much of it. The words "whenever you need me" were stuck in his head.

Whenever I need him? Who, Farley wondered, needs who here?

Chapter Two.

Rick Wagoner never gave a speech without checking and rechecking every word he said as the chairman and chief executive officer of the General Motors Corporation. He not only pored over speeches but scrutinized any press release, doc.u.ment, letter, or internal communication that his aides drafted in his name. Wagoner was particularly attentive to quotes attributed to him. "I don't want to ever say anything publicly that I might have to retract," he told his staff. He had another hard-and-fast rule, a mantra drilled into him by Jack Smith, his mentor and predecessor as the top man at the biggest car company the world had ever seen. "We don't want to ever overpromise," he said, "and underdeliver."

As Farley was heading back to the auto show after meeting Bill Ford, Wagoner was preparing to leave it. The "GM Experience" at the show was-no surprise-the grandest corporate display in the hall. More than a hundred cars, trucks, and sport-utility vehicles were decked out on the floor, and each of GM's eight North American brands, from mighty Chevrolet down to the tiny Saab division, had its own special area. In one corner was a large stage with a giant movie screen behind it for the gala press events to introduce new models. Above the stage was a full second floor that doubled as a showroom for new technology and a coffee bar or c.o.c.ktail lounge, depending on the hour.

Wagoner was working in a temporary office hidden behind a thick black curtain near the stage set. Most of GM's senior executives had rooms there to do interviews, hold private meetings, and generally conduct business. General Motors hardly stopped running during the weeklong media previews. It just relocated its command center to the row of drafty cubicles that backed up against the convention center's loading docks.

The press conferences were over, but there was one last show-related duty to attend to. In midafternoon on January 13, 2005, Wagoner, along with all the other senior GM executives, marched out of the building onto Jefferson Avenue. Waiting for them at the curb was a line of very large sport-utility vehicles-Chevrolet Suburbans, GMC Yukons, and Cadillac Escalades-with their V-8 engines idling. GM sold nearly nine million vehicles each year. But these giant SUVs were the pride of the fleet-eighteen-foot-long, seven-thousand-pound, seven-pa.s.senger land yachts with every option known to man. Wagoner got in the first one, a black Escalade ESV with a GM driver behind the wheel. As always, he rode shotgun, up front in the deep leather pa.s.senger seat.

As the caravan pulled out, Wagoner reviewed the speech he was about to give. In twenty minutes he would walk into a hotel ballroom and address the Auto a.n.a.lysts of New York, the watchdogs of the auto industry for the major investment banks on Wall Street. Their research reports were critical factors in daily decisions by investors to buy, sell, or hold a stock. Wagoner knew his remarks this afternoon would generate instant headlines and directly affect the value of the 564 million shares of stock that const.i.tuted ownership of General Motors.

If there was ever a time to watch his words carefully, this was it. GM had already endured a rough week in the stock market. Its share price had fallen for four straight days. The Street had not been this worried about the company's financial condition since the early 1990s, when GM came close to bankruptcy, fired its chief executive, and embarked on a seemingly endless series of restructurings. The automaker sold an average of twenty-four thousand cars each day in two hundred countries. But it was operating on razor-thin margins of profitability. Investors had a bad case of the jitters about GM. It was up to Wagoner to calm them down.

Six foot four, broad-shouldered, and wearing his usual pinstriped suit, white shirt, and solid tie, George Richard Wagoner Jr. cut an impressive figure. He had a long, serious face: high forehead, big chin, and jowly neck that looked out of place on a fit former college basketball player who would turn fifty-two years old in a month.

Wagoner stood ramrod straight and spoke in flat, even tones, with a slight southern accent from his Virginia upbringing. In public settings, he was unfailingly congenial, polite, and friendly. Most of the auto a.n.a.lysts had known Rick Wagoner for years. He had spent his entire working life at GM, and five years earlier had become the youngest chief executive in the company's storied history. In May 2003, the GM board of directors elected him its chairman, giving Wagoner wide authority over every facet of corporate strategy and direction. He had the perfect GM resume-star a.n.a.lyst in the New York treasurer's office, head of finance in Europe, managing director in Brazil, chief financial officer, president of North American operations. By the time he reached the top, it seemed as if Wagoner had been chosen every step of the way to one day lead the world's most powerful automobile company.

Yet to many of the a.n.a.lysts, Wagoner was still an enigma. He was energetic, extremely smart, and clearly devoted to making GM a success. Yet the performance of GM was plodding, confusing, and generally underwhelming. Wagoner loved catchphrases-"run lean," "think global." But n.o.body would ever describe GM as lean or globally integrated compared to its chief rival, Toyota. Wagoner often likened GM to a premier professional athlete. "The big and the fast beat the small and fast," he said. GM was big all right-324,000 employees, a.s.sembly plants in thirty-two countries, and more models and brands than any other automaker. But whenever GM took on a new initiative, such as entering an emerging vehicle segment or downsizing its immense bureaucracy, it moved at a glacial pace.

The three dozen a.n.a.lysts at the Ritz-Carlton had spent most of the day hearing presentations from Ford and several of the big auto suppliers. GM was last on the list. When Wagoner stepped to the podium, he opened with a line that many in attendance swore they had heard before. "The theme of my talk today is going to be playing our own game," he said, "and playing it to win."

n.o.body groaned at the a.n.a.logy. They were all used to Wagoner's sports cliches. But they weren't as forgiving when Wagoner began comparing the current state of GM to when it hit bottom in 1992. "What I'm going to convince you of is that, in fact, the situation today is dramatically different and in fact dramatically better," he said.

The a.n.a.lysts didn't need convincing. All Wall Street wanted to know was how much money GM expected to make in the next twelve months.

GM was previously on record as predicting it could earn $10 per share in 2005, or about $5.6 billion in profits. Its 2004 numbers were well short of that. And as Wagoner went on and on about the great strides the company had made, a few a.n.a.lysts began to lose patience. They deserve credit for how far they've come, thought John Casesa of Merrill Lynch, who had been studying GM for years. But we're trying to figure out how to value them now.

Wagoner wasn't straying from his script. His mission was to defend GM and a.s.sure investors that it was-and always would be-a winner. "Our progress over the last decade has moved us from a company that was uncompet.i.tive to a company that is very compet.i.tive," he said. And with that, he turned the microphone over to John Devine, GM's chief financial officer. This was the moment Wall Street was waiting for. It was getting close to 4:00 P.M., when the market closed. The meeting was being broadcast live over the Internet, so traders and investors could react immediately. With the clock ticking down, Devine broke the news. "For 2005, for earnings we're looking at a target of $4 to $5 earnings per share," he said.

Within seconds, GM's stock price started dropping. By the closing bell, it was down 3 percent for the day to a new fifty-two-week low of $37.32. The losing streak in the market was now five days and counting. By the time Devine finished talking, GM's stock was worth $21 billion in total-about $650 million less than it had been ten minutes earlier.

The meeting ran on, with multiple executives giving detailed presentations on Europe, China, employee health care costs, and new car projects. But in the question-and-answer session at the end, the focus kept circling back to the 2005 forecast. One a.n.a.lyst, Rod Lache of Deutsche Bank, was particularly curious about any possible shortfall in GM's all-important U.S. vehicle sales. "Are you guys antic.i.p.ating any kind of volume decline?" he asked. Wagoner took the question but didn't answer it. "We don't want to go into that yet," he said. "We will give you a report on a regular basis . . . so you know what's going on."

Afterward, Wagoner couldn't hide his frustration. After taking such care to describe GM's comeback since the dark days, all Wall Street was interested in was short-term results. "I don't believe those guys," he snapped to an aide. "Don't they know how hard it is to get 75 percent of this business right?" But as quickly as he angered, he just as quickly calmed down. Getting mad or losing his cool was not Wagoner's style. He was a problem solver, a steady hand, and, above all, a true believer in the strength and purpose of General Motors. Besides, he understood the financial numbers better than anyone. And as bad as the reaction was now, Wagoner knew there was more trouble ahead.

A week later, GM announced that its corporate profits had plunged 37 percent in the final quarter of 2004. Losses were mounting in Europe, and its market share in the United States had fallen to a new low of 26 percent. Then, in mid-February, the company stunned investors when it agreed to pay $2 billion to the Italian automaker Fiat to dissolve an ill-fated joint venture overseas.

With each dose of bad news, GM's stock price sank lower. When it hit $36 a share, the telephone rang in Jerry York's condominium in a quiet suburb about forty miles north of Detroit. York had been wondering when Kirk Kerkorian would call.

"Jerry, have you been seeing what's happening with GM stock?" Kerkorian asked.

"Yeah, Kirk, it's getting hammered," York said. "I almost called you yesterday to talk about it."

The phone went silent for a moment. Kerkorian was eighty-seven years old, and his net worth was about $10 billion. He was never much of a talker. After about a minute's pause, he continued.

"How long would it take you to do a deep dive on this thing?" he said. "You know, see what you think of it?"

"Should take me a couple of weeks," York said. "I'll get right on it."

Kerkorian hung up and settled back in his office around the corner from Rodeo Drive in Beverly Hills, California.

York turned on his computer, typed in the Internet address for the General Motors corporate website, and started reading.

General Motors was running out of parking lots. Every day, unsold cars, trucks, and SUVs were piling up across the country, and there was no room left outside its a.s.sembly plants. So the company stockpiled them wherever it could find s.p.a.ce-airports, empty shopping malls, state fairgrounds. By the end of February 2005, GM had an astonishing back inventory of 1.3 million automobiles in North America, more than double what would ever be considered normal.

The surplus didn't happen overnight. For five years, the American auto industry had been producing cars at a feverish pace. Enticed by cheap loans and fat rebates, consumers were buying seventeen million new vehicles annually. And the compet.i.tion to fill their garages had never been hotter. The big j.a.panese companies-Toyota, Honda, and Nissan-were steadily increasing imports and expanding production in their U.S. plants. In an all-out bid to defend their market shares, the Detroit automakers churned out more and more vehicles.

But GM's sales weren't growing; they were dropping, 12 percent in February alone. And the bloated inventory was absolutely killing its cash flow. General Motors spent huge sums to buy parts for its cars and to pay the workers who made them. But it received no revenues until car dealers-its real customers-purchased the products. The obvious solution was to slow down production and bring it more in line with demand. But GM's labor contract with the United Auto Workers penalized the company if it cut a shift at a plant or temporarily sent workers home. It still had to pay idled employees nearly their full wages, even when there wasn't enough work for them to do. Moreover, GM was paying tons of money in health care benefits to hundreds of thousands of blue-collar retirees and surviving spouses of deceased autoworkers.

Decisions had to be made, and fast. In early February, the company's board of directors convened on the thirty-ninth floor of Tower 300 of the GM Renaissance Center, the company's world headquarters in downtown Detroit. All eyes in the room turned to Wagoner. He was facing the first true crisis in his five years as chief executive. He opened the meeting by outlining a critical task that would take months to complete: convincing the UAW to accept cuts in health care. All of the GM directors wholeheartedly backed that. Whatever it took, they considered reducing health care costs a crucial short- and long-term goal.

Then Wagoner laid out his action plan. First he would overhaul sales and marketing, and immediately start a new campaign to reduce inventories. Then GM would speed up the timetable for its most important new product, the T-900, which was a completely new version of GM's high-profit pickup trucks and big SUVs. Finally, Wagoner would a.s.sume daily responsibility for running the struggling North American operations.

Vice chairman Bob Lutz and group vice president Gary Cowger would be relieved of their duties as chairman and president of the unit. Neither of them had proven adept at managing the factories, suppliers, and layer upon layer of sales, marketing, and communication staffs. Moreover, they clashed on a personal level. Other GM execs were still talking about how the two had bickered over which one would take center stage at the latest auto show press events.

Lutz claimed that he didn't care and that Wagoner was welcome to take on the mundane details of supervising the legions of workers in North America. Privately he simmered, and he began sarcastically referring to Wagoner as "our commander in chief." Yet as a former Marine Corps fighter pilot, Lutz would never buck orders from above. And he totally agreed with the decision to accelerate the T-900. Pickups and SUVs made more money for GM than virtually all of its other models combined.

Early the next morning, Lutz cruised into work in his personal McDonnell Douglas MD-500 helicopter, traveling at 150 miles per hour from the airport near his house outside Ann Arbor, Michigan, to GM's immense technical center in the city of Warren, north of Detroit. His first meeting of the day was with the two dozen senior engineers and planners on the T-900 team. Lutz rarely called emergency sessions like this. Something big was up.

"Can we pull these trucks ahead by several months?" Lutz asked the group. "Tell me the reasons why it can't be done. Then tell me what it would take to make those reasons go away."

Gary White, the head of the T-900 team, swallowed hard. Accelerating a program as complex as this was rarely done. Everybody had to go faster, from the designers to the engineers, suppliers, and plants. On top of that, an intricate schedule of safety and durability tests had to be torn up and rewritten. But White knew Lutz wasn't looking to hear about the problems. "We can do it," White said. "It's like conducting the orchestra. Everybody just has to play the song a little faster."

But White was concerned about the other vehicle programs in line ahead of the T-900 in GM's research and testing labs. Lutz said he would personally make sure the trucks had top priority. "It's kind of like when you go to Disneyland in a wheelchair," he said with a grin. "You always get to go to the head of the line."

Even with a new timetable, the big trucks still wouldn't hit the market for another year, and GM was hemorrhaging cash right now. On March 16, a press release headlined "GM Revises Earnings Outlook" went out over the newswire. "Clearly we have significant challenges in North America," said Wagoner's statement. But the bombsh.e.l.l was the forecast. Not only wouldn't GM earn anything close to the $4 to $5 a share in profits in 2005 that it had promised just two months earlier, but the company now expected to lose as much as $1 billion in the first quarter of the year.

"That was," said John Casesa, the veteran Merrill Lynch a.n.a.lyst, "the 'oh s.h.i.t' moment."

GM's stock went into instant free fall. By the end of the day, it had dropped 14 percent to $29.01-its lowest level in eleven years. It was the automaker's largest single-day share loss since the stock market collapse of 1987. The pummeling by investors was so brutal it dragged the entire Dow Jones Industrial Average down 112 points.

Every a.n.a.lyst who had advised clients in January that GM was going to be okay felt betrayed. Casesa, who had worked at GM as a product planner in the 1980s, couldn't type fast enough to revise his a.n.a.lysis of the company. "We expect the company's accelerated market share decline will continue to severely impact earnings and cash flow," he wrote.

But that was the sanitized version of what Wall Street thought about Wagoner & Co. "These guys always think they are doing such a great job," Casesa said. "But inst.i.tutionally they don't keep their promises, they don't follow through, they're not consistent, and they're not accountable." The market had been burned, and it was unforgiving. When Wagoner got on a conference call with the a.n.a.lysts, the questions came fast and furious. What about North America? How many factories did GM plan to close? How would the company reverse its slumping sales?

"North America is our eight-hundred-pound gorilla," Wagoner said calmly. "Today's announcement really shows how important it is that we get this business right."

But he refused to say how, or when, it would be fixed. That only ratcheted up the heat. What about Wagoner's job? Did the GM board still support him?

"The board is fully informed on all our strategies, and on that basis supportive," he said.

What exactly did that mean?