On May 12, LaSorda and Gettelfinger flew to Germany to meet with Zetsche, who told the union boss point-blank that this was not a negotiation. Cerberus was buying Chrysler and Gettelfinger could either support the deal or oppose it. There was no middle ground. Without allies on the supervisory board, Gettelfinger didn't have the muscle to block the deal. He decided to go along and hope for the best. "You have to play the cards you are dealt," he said.

Two days later, Zetsche, LaSorda, and John Snow, Cerberus's non-executive chairman, stood together at a packed press conference in Stuttgart to announce the breakup of the DaimlerChrysler merger. After nine tumultuous years, the great German-American automotive experiment was over. "We're confident that we have found the solution that will create the greatest overall value-both for Daimler and Chrysler," Zetsche said.

Immediately after the announcement, Zetsche flew to Auburn Hills for one last town hall meeting with Chrysler executives and employees. His heart began pounding as he walked into the auditorium. He had no idea what to expect. Selling Chrysler was the most emotional experience of his career. These were his colleagues, his friends. How could he look them in the eye now? Would they call him a traitor? "Of course, I felt like s.h.i.t," he said. "But I knew it was the only decision I could make." But instead of shunning him, people smiled and shook his hand. Some even hugged him. "It is important to me," he whispered to one former aide, "that you know I did not want to do this." And when he addressed the crowd, Zetsche spoke from the heart. This was, for him, good-bye. "The five years I spent here in Auburn Hills were professionally and personally the most satisfying years I spent anywhere," he said. Now Chrysler was getting a fresh start. And he had no doubt the man they were about to meet would restore it to its former glory.

Then he introduced Steve Feinberg. The room got totally quiet. Feinberg rarely made public appearances. He spoke in a soft voice, but his intensity was obvious. He told them how proud he was to buy Chrysler and to make it an American-owned company once again. "I want to take care of it," he said. "This is a once-in-a-lifetime chance." He took a few questions, and then tried to slip out of the building unnoticed. But when he saw the photographers and reporters stationed in the lobby, he rushed back inside. He wasn't talking to them. That wasn't part of the deal.

Chapter Twenty.

The hour was late and the black-tie crowd a bit tipsy at the afterglow party following the big charity gala at the auto show. The setting was one of those only-in-Detroit inst.i.tutions: a shuttered car dealership that had been converted into a new Museum of Contemporary Art. Bud Liebler had been attending these auto show bashes forever-as an advertising executive, a Ford marketing guy, and then for twenty years at Chrysler, where he ran public relations for his close friend Lee Iacocca. He knew everybody who was anybody in Detroit-except Alan Mulally. And all of a sudden the new Ford chief executive walked in the door. "I saw Alan walk in alone," Liebler said. "There were these two cleaning ladies, and he goes right up and starts talking to them."

The night before, Liebler had heard Mulally speak at another function and was very impressed. "He seemed so sincere and genuine, and talked about how thrilled he was to be in Detroit," Liebler said. Now there was Mulally, chatting up the cleanup crew while the party people boogied around him. Liebler walked up and extended his hand. "Alan, I'm Bud Liebler," he said. "I saw you speak last night, and I wanted to say it's exciting to have you here. What you were saying is exactly what this town needs to hear."

Mulally looked at him and smiled. "Really?" he said. "You couldn't tell that I was scared s.h.i.tless?"

It was a joke-and it wasn't. For five months Mulally had been the bright new face of Ford, telling anyone who'd listen that this iconic American company was going to become great again. He never varied from his script. The Blue Oval was special, he said, and Ford had a unique place in automotive history. But it needed to change its ways to survive. Mulally was always so disciplined, so positive, so relentlessly optimistic in public. But Ford had fallen to scary depths. It was sinking faster than even GM or Chrysler, burning through money and losing market share by the day. Mulally could not afford to look back. His stellar career at Boeing was in the books, over, done. He had made his decision. And the reality he faced now was pretty harsh.

The comeback had better start soon. Ford had ended 2006 with a thud, losing a total of $12.6 billion, the worst results in its 103-year history. "We are," Mulally said, "at the bottom." Those gigantic bank loans could not come quickly enough. Just closing plants and buying out workers cost the company nearly $5 billion.

And then there was the product. "The customer gets to decide," he said. No more telling consumers what they wanted. Ford would respond to what the American public demanded-safety, fuel economy, quality, styling, value. If that's what made Toyota the best, then Ford would respect that, emulate it, and hopefully improve upon it.

He put up a chart in his office that compared Ford and Toyota, product by product. "I don't want anybody coming in here and not knowing what the compet.i.tion is," he said. Slowly but surely, Ford's executives began to move to Mulally's rhythm, absorb his message, and believe in what he preached. "Before, this was a culture of always trying to explain why we were off plan," said Don Leclair, the chief financial officer. "The difference now is we're actually committed to staying on the plan."

So far the plan had brought a lot of pain. Tens of thousands of Ford workers, both salaried and hourly, took buyouts or early retirement packages to start their lives over outside the auto industry. One hard-hit department made going-away T-shirts-FORD RETIREE: CLa.s.s OF 2007. People wept openly as they carried their belongings out of world headquarters on their last day of work. "It seems kind of unreal," said Diane Faught, who left Ford after a thirty-year career that took her from mailroom clerk to supervisor's job. "Tomorrow I wake up and start my to-do list." White-collar workers who were lucky enough to stay saw their medical insurance payments increase 30 percent overnight. All merit pay raises were canceled. Ford even closed the day care centers for the children of its employees. "The business realities that we are working through forced us to make this difficult decision," the company said in a statement.

It wasn't just Ford. The struggles of the Big Three impacted every aspect of life in metropolitan Detroit. Nearly one hundred homes a day were being foreclosed upon. An estimated two thousand people packed up and moved away each month. On more than one occasion, police were called to break up unruly crowds that couldn't get into overflowing job fairs at Cobo Center. When one of the city's casinos advertised for new workers, ten thousand people lined up on the first day. The skeleton of the domestic auto industry seemed racked by some infectious disease. The biggest parts suppliers tumbled one after another into bankruptcy: Delphi, Dana, Collins & Aikman, Federal Mogul, Dura, Tower Automotive. The trickle-down depression had become a flood, washing away decades of prosperity. There was no quick fix, not like in the 1990s when cheap gasoline fueled the SUV boom and pumped up profits. Detroit couldn't rely on new trucks to pull it out of the abyss this time. It had to get lean, hard, and hungry again and fight its way back, one round at a time. Even then, it might be too late.

Mulally had one advantage over every other auto exec in town: He hadn't lived through the good times. He had no memories of how business was done for decades or hardened notions of what was and wasn't possible. So Ford was at the bottom? Accept it-but don't keep staring at the hole it fell into. "Expect the unexpected and deal with it," he said. "It can't be 'I think' or 'I wish' or 'I hope it could be.' We're in tough shape. But what's the plan?" Mulally was determined to make Ford smaller and more streamlined, and to learn from past mistakes and not repeat them. After Ford's products took a beating from the magazine Consumer Reports, Mulally flew out to Connecticut and listened for hours as the publication's staff critiqued every model. To understand the challenges at the retail level, he spent part of a day as a salesman at a dealership in Dearborn.

He always liked to ask the obvious questions. In one of his first reviews of new vehicles, he couldn't put his finger on what was missing. Finally, he asked, "Where's the Taurus?" Someone said the Taurus name had been dropped and replaced by the Five Hundred. Mulally couldn't believe it. The Taurus was one of the few Ford cars he'd ever heard of. It had been a major player in the midsize segment for years. And now they changed the name? "You have until tomorrow to find a vehicle to put the Taurus name on," he told the product team. "Then you have two years to make the coolest vehicle you can possibly make."

He drew his team together and urged them to act confidently and think outside the box. When the press began speculating about Mark Fields's job security, Mulally put his arm around Fields in public. "Mark is a terrific leader," he said. "I have the utmost confidence in him." He knew Leclair had a p.r.i.c.kly reputation, but that didn't stop him from challenging the finance exec to work more closely with his peers and straighten out Ford's convoluted accounting. Mulally liked what he saw in Derrick Kuzak, the new global product boss who had developed some excellent small cars in Europe. Mulally told him not to be bashful about bringing cars like that to the United States. And he took a special interest in his young head of North American manufacturing, Joe Hinrichs, a thirty-nine-year-old Harvard Business School graduate and former plant manager.

Mulally pushed Hinrichs to broaden Ford's dialogue with local union leaders and get factory-by-factory commitments to reduce absenteeism and improve teamwork. The one gaping hole in the lineup was in sales and marketing. Mulally wanted someone with fresh ideas in that job and authorized an outside search firm to identify potential candidates.

The more Mulally settled in, the less he relied on Bill Ford. Bill tried to stay in the background as much as possible. But he continued to come to his office almost every day as he had done for years. One time, Mulally asked Joe Laymon what was up with that. "Is he always going to be there, right next door?" he said.

Laymon had antic.i.p.ated this. Mulally was a thoroughbred executive and accomplished leader. Naturally he was antsy having the former CEO (and current executive chairman) around all the time. Laymon gently brought the topic up with Bill. "Maybe you might want to leave the office once in a while," Laymon said. "You know, don't come in so frequently."

But Bill made it clear he wasn't going anywhere. "That s.h.i.t will happen," he snapped, "when my name is not on the building." Laymon backed off and never brought it up again. He knew that even with Mulally on board, Bill Ford still felt big pressure. The historic losses, mortgaging the Blue Oval, going outside the industry for a CEO-the responsibility still fell on him. He heard the snide comments from GM executives about how desperate Ford must be. "It was like, 'Ha-ha, hope that works for you,'" Bill said. "'Now we're going to really kick Ford's a.s.s.'"

Private equity's courtship of Chrysler also cast an unwanted spotlight on Ford. The company's sunken stock prices and myriad salable parts (particularly the foreign brands) made it very attractive to the buyout boys on Wall Street. But the shield protecting Ford from an unwanted takeover was always the special cla.s.s B stock owned by the heirs of Henry Ford. The shares were a fraction of the overall common stock. But collectively, they gave the family an iron-clad 40 percent voting stake.

The problem was that the Ford family was growing, and the value of their shares was shrinking fast. In 1999, when Bill Ford took over as chairman of the board, the seventy million special shares had a market value of $2.2 billion. Now that figure had dwindled to about $580 million. And when Ford negotiated its big loan package, the banks demanded that the company suspend its quarterly stock dividends to shareholders. Eight years earlier, those dividends amounted to $130 million in annual income for the Ford family members. But since the deal, they hadn't received a penny.

The Ford family tree was broad and eclectic. At the top were the two surviving grandchildren of the original Henry Ford: William Clay Ford Sr., Bill's father, and Josephine Ford, Bill's aunt. Both were in their eighties. Then there were the thirteen members of the fourth generation-Bill Ford, his three sisters, and their nine cousins, including Edsel Ford II, an influential company director and the only son of Henry Ford II (who had dominated Ford as president and chairman from the mid-1940s until 1980, and remained its commanding figure until his death in 1987).

Other than Bill and Edsel, none of the fourth-generation Fords worked for the company. One of their cousins was a prominent devotee of the Hare Krishna religious sect. Another cousin owned a winery in upstate New York, and another raised purebred hunting dogs on a seven-thousand-acre farm in Georgia. A few lived in Michigan, but most were scattered around the country. And each member of the fourth generation had his or her own growing family; the sprawling fifth generation already numbered more than thirty members, several of whom were adults with their own children.

Although Bill and Edsel were the only Fords with any visibility, they were still considered Detroit's royal family. No name defined the city the way Ford did. It graced hospitals and schools, libraries, highways, parks and recreation centers. Pro football was played at Ford Field and high school graduations held at Ford Auditorium. Even the gleaming, gla.s.s-sheathed Renaissance Center, home of General Motors and the tallest structure in the state, was conceived by Henry Ford II and financed primarily by Ford Motor to help downtown Detroit recover from the devastating race riots of the 1960s.

A few times each year, the extended family gathered in Dearborn to discuss finances, legal matters, and the source of their great wealth-the Ford Motor Company. On a sunny, warm Sat.u.r.day in late April 2007, the family convened for a crucial meeting that was noteworthy because of two invited guests: Wall Street investment bankers Joseph Perella and Peter Weinberg.

These weren't just any outsiders. Joe Perella had been a star on Wall Street for thirty years and was a veteran of landmark deals including the leveraged buyout of RJR Nabisco. Peter Weinberg was the grandson of Goldman Sachs legend Sidney Weinberg, a confidant of the original Henry Ford and the architect of Ford's first public stock offering in 1956. Together, they specialized in advising corporations and inst.i.tutions confronted with enormous, turning-point decisions, such as whether or not this family should sell Ford and end one of the great industrial dynasties in U.S. history.

The Fords were at a serious crossroads. If Ford went bankrupt, the family's stock was worthless. The critical issue before them was whether to hire the bankers to investigate all available options, including a potential sale. Bill Ford and his father wanted no part of it and argued vigorously against retaining the two financiers. Edsel Ford was traveling in Australia but sent a long letter in support of Bill's position. Elena Ford, Edsel's niece and a junior executive at the company, also spoke out against hiring Perella and Weinberg and offered to personally buy out the shares of any Ford who wanted to sell.

But what really squelched the dissent was Mulally. He addressed the family face-to-face and gave a spirited, point-by-point synopsis of how he and his management team were going to fix Ford. His pitch to the banks had been a dress rehearsal compared to this performance. The family's fortunes rested on his shoulders. Mulally had to convince them he would deliver the turnaround-and he did. He so impressed the group that he got an ovation after his presentation.

At the end of the meeting, the family voted not to hire Perella Weinberg Partners. The dissident relatives were not only neutralized but firmly back in the fold. Even Steve Hamp, the former Ford chief of staff who had been let go, sounded like a cheerleader afterward. "The notion that there's a revolution going on, or that there is in any way a lack of confidence in what Alan is doing, is categorically wrong," he said in an interview. "He was applauded by every single person in the room-not only for what he said, but [for] what he's doing and what he represents."

It was only a statistic, a number in an industry that churned out reams of facts and figures. But when Toyota announced on April 24 that it had sold 2.35 million automobiles around the world in the first quarter of 2007, the auto industry knew something monumental had finally happened. General Motors had sold almost as many vehicles, 2.26 million, but still came up short. For the first time in more than seventy years, GM wasn't number one anymore. Detroit's pride was hurt. But more important, Toyota's results proved that it had gained the upper hand and taken the high ground. It was growing while the Big Three were declining; it was winning customers whom Detroit was losing. While the American carmakers were posting huge losses, Toyota earned a record $13.6 billion in its latest fiscal year. That meant more cash to fund new products, build new factories, and develop new technology. Toyota was rich and getting richer. And Detroit had hit the wall.

The Big Three were all counting on upcoming contract talks with the United Auto Workers to help them fight back. The union's four-year deal expired in September, and formal discussions would not kick off until the summer. But GM, Ford, and Chrysler were already laying the groundwork to reduce what everybody in Detroit called "the gap," the difference in labor costs between the Big Three's unionized workforce and the nonunion j.a.panese factories in the United States. The number was a complicated calculation that took into account the wages and benefits of active workers, but also added the cost of supporting legions of retirees who didn't build cars anymore. The Big Three said the c.u.mulative hourly cost of a union worker was between $70 and $75 an hour, versus $40 to $45 for an employee at plants owned by Toyota, Honda, and Nissan. The UAW disputed the number, saying it was unfair to add in medical care and pensions to retirees and their family members. But the fact was Detroit spent way more on labor per car than the Asians did. And it was losing tons of money doing so.

Ron Gettelfinger hated the media's fixation on "the gap." He believed that the Big Three wasted a lot of cash on bureaucrats, PR people, and advertising that didn't sell vehicles. Was it the workers' fault that the companies kept cranking out old-style SUVs long after the public got tired of them? And he absolutely boiled over at the paychecks of the executives who were responsible for driving Detroit into the ditch. Even though GM lost almost $2 billion in 2006 (a big improvement over the $10.4 billion loss the year before), Rick Wagoner took home $10 million in compensation, Bob Lutz got $8 million, and Fritz Henderson earned $5 million.

And Delphi was the worst. Gettelfinger vowed again that the union would strike the bankrupt parts supplier if it canceled its labor agreement, especially after Steve Miller arranged for its executives to get nearly $400 million in retention bonuses. "If they void the contracts, we are going to shut them down," he warned. "They're a bunch of hogs slopping at the trough that's full of money and they can't get enough."

But the strike talk was just that: talk. The UAW was in no position to shut down Delphi, which would cripple GM's a.s.sembly plants. The union had lost about eighty thousand members in less than two years through buyouts and early retirements, with several thousand more on the way at Chrysler. Its total membership was down to about a half million people-the lowest since World War II-and fewer than half of its members were employed by the Big Three.

Despite Gettelfinger's anger, his members were receiving extraordinary packages to give up their blue-collar jobs. At Delphi, workers would get up to $105,000 over three years in exchange for a 30 percent wage cut. Where else in the United States was a factory worker going to get that kind of soft landing in an industry losing billions? The fortunes of the UAW and Detroit were completely intertwined. If the Big Three needed to close "the gap" to survive, how could the union fight them?

But Gettelfinger had to talk tough. No union leader wanted to go into negotiations admitting that concessions were inevitable. "Collective bargaining is not collective begging," he thundered at the UAW's bargaining convention in Detroit. "It would be a grave mistake to equate our actions with capitulation."

But the auto executives were already unusually plainspoken in public about these talks. "If we don't nail these negotiations," said Joe Laymon, "we might not be a viable company anymore." The discussions among the Big Three were even franker behind closed doors. For several months, the top execs at GM, Ford, and Chrysler had met in secret to plot strategy. And the idea that Dieter Zetsche proposed during the last labor talks was coming to fruition. The companies had retained an outside advisor, the heavyweight investment firm Evercore Partners, to draft plans for the three-way mutual-aid pact that Zetsche had wanted four years earlier. It wasn't a complicated arrangement. All three automakers would pursue the same princ.i.p.al objectives in the new contract: off-loading retiree health care to union-run trusts, inst.i.tuting a two-tier wage system that paid new hires significantly less than $27 an hour, and abolishing the dreaded jobs bank that kept laid-off workers on the payroll indefinitely.

Then if the union went out on strike and shut down one of the companies, the other two would give it money to weather the storm. It was an unprecedented move in the history of Detroit labor relations. GM, Ford, and Chrysler would stand together, no matter which one took on the UAW.

The plan was called Project Compa.s.s. And if it worked and "the gap" was closed, Detroit might turn around-and start heading north again.

Chapter Twenty-One.

How can I trust what you guys are doing?"

Ron Gettelfinger wanted straight answers from Steve Feinberg. The UAW president was deeply suspicious of what private ownership would mean for Chrysler. He had once trusted the Germans, and that sure hadn't worked out. So why should he believe Cerberus would fix Chrysler without whacking more union jobs?

They met at Solidarity House, the union's gated headquarters on the Detroit River. Feinberg could see that Gettelfinger was worried. This guy really cares about his people, he thought. Feinberg may have been a millionaire many times over, but he cherished his own middle-cla.s.s roots and was fiercely patriotic. These were hardworking Americans making cars and trucks at Chrysler, and Feinberg believed that Daimler had hurt the company badly. He had no doubt his people could do better. It was all about superior management, attention to detail, and aggressive moves. "We won't bring the company back by pounding on labor," he told Gettelfinger. "That's not our way. I promise you, we're going to make it here. We've got a shot at this."

Cerberus had outhustled its compet.i.tion to buy Chrysler, but it still had to close on the deal. Its consortium of banks was already having trouble convincing investors to purchase the $20 billion in loans needed to fund Chrysler's auto operations and finance unit going forward. The market for corporate debt-the nuclear fuel of the private equity boom-was drying up. And a flailing automaker from Detroit was hardly a promising opportunity. No one was more concerned than Dieter Zetsche; he couldn't rest until the sale was final in August. Until then, Chrysler was still technically under his watch. But for all practical purposes, Cerberus was in charge.

The private equity model was based on quick decisions and intensive restructuring. Chrysler was still losing big money, almost $2 billion in the first quarter of the year. Tom LaSorda was too invested in Chrysler's existing blueprint to oversee the delicate task of retooling the company. Feinberg wanted him to focus on union negotiations and finding overseas manufacturing partners. And as much as he respected Wolfgang Bernhard's automotive skills, there was no way Feinberg was making him chairman or chief executive. "We have to have an American CEO," he said. "Wolfgang wanted the chairman role. But we had no intention of making him top dog."

Cerberus was famous for paying top dollar to hire experienced operating execs from blue-chip companies, then dispatching them to overhaul the businesses it bought. It was akin to a pro sports team spending heavily on free-agent players to build a winner. In Chrysler's case, Feinberg had two potential chief executives in mind: Jim Press and Bob Nardelli.

Jim Press was Toyota's top U.S. sales executive, and hiring him would be a coup. He was also definitely interested in the job. But Feinberg was a big believer in Nardelli, a fifty-nine-year-old acolyte of General Electric's legendary chairman, Jack Welch, who rose to become head of GE's huge Power Systems division. Nardelli abruptly left GE after he lost a three-way race to succeed Welch and landed at Atlanta-based Home Depot.

Nardelli was intense, methodical, military-minded, and painstakingly devoted to the bottom line. In six years as Home Depot's chief executive, he doubled sales, streamlined operations, and boosted profits. But his blunt, my-way-or-the-highway style alienated those executives and store managers who were used to a decentralized, entrepreneurial culture. When the company's stock languished and expansion leveled off, shareholders got restive. Nardelli did not react well to criticism and was roasted in the media for wielding a digital timer to limit disgruntled investors to one minute at the microphone during the company's tense 2006 annual meeting. He left Home Depot in early 2007 with a severance package estimated at $210 million (much of it compensation for leaving benefits behind at GE) and a badly bruised reputation. But Feinberg wasn't fazed by his flame-out and figured Nardelli could whip Chrysler into shape. "This guy will run through walls for us," he said.

In early July, LaSorda was on his way to New York for a weekend with his wife when Feinberg called him. "Tom, I'd like to bring in a new CEO," he said. "His name is Bob Nardelli."

LaSorda was expecting this. "I'll be quite honest with you," he said. "I've done a lot of research on private equity, and you guys always bring in a new CEO."

"But I want you to stay too," Feinberg said.

"I'll make it real simple for you," LaSorda said. "If I like Nardelli, I'll stay. If I don't, I'll walk."

That night, LaSorda and his wife, Doreen, met Nardelli for c.o.c.ktails at the Waldorf-Astoria. They clicked immediately. One thing about LaSorda: He was flexible. He had to be when he worked for the Germans. And he liked that Nardelli was direct, uncomplicated, and seemingly without a hidden agenda.

"Tom, this isn't Cerberus talking, it's me," Nardelli said. "I'd like you to be part of my team."

They talked for four hours and closed down the bar. After that, it wasn't hard for LaSorda to make up his mind. He had earned more than $3 million the year before at Chrysler and was due a big bonus once the sale was final. Sticking around was the smart move. The next morning, he called Feinberg. "I'm still in, if you want me," he said.

Feinberg wasn't so lucky with Wolfgang Bernhard. After spending several weeks inside Chrysler reconnecting with the troops, Bernhard was chagrined to learn he would have to take a backseat to Nardelli. He felt Cerberus had reneged on a promise to give him the leadership role and quit in a huff. His departure would raise a lot of questions both inside and outside the company.

But Feinberg still had Jim Press waiting in the wings, which gave him the makings of an all-star lineup: Nardelli as the boss and efficiency expert, flanked by LaSorda as point man for manufacturing and labor, and Press running sales and marketing with a Toyota-like consumer focus. All that was left was to close the deal.

But by late July, the market for Chrysler's debt offering had totally evaporated. Investors had barely nibbled on the $20 billion package of loans, and the offering was postponed indefinitely. Instead, the deal's underwriters, including JPMorgan Chase, Citigroup, and Goldman Sachs, were forced to come up with $10 billion of their own cash to lend to the automaker. Zetsche personally had to call each of the banks' CEOs to pressure them to honor their commitments. Additionally, Daimler had to kick in an additional $1.5 billion and Cerberus $500 million to get the newly independent Chrysler off and running.

It was the first major glitch in the private equity game plan. Selling the debt to investors would have established parameters for Chrysler's recovery by allowing the company to pay interest out of its earnings, and the princ.i.p.al when it blossomed and sold stock in a public offering. Cerberus would be accountable for the loans, but a broad pool of investors would not have had much of a collective voice in what was happening inside Chrysler. Now the biggest banks on Wall Street were stuck with very large outstanding loans to a shaky car company in Detroit. That would become a problem down the road.

In early August, a giant banner was hung from the side of the Chrysler headquarters building that read GET READY. It was as if a surprise was coming. But get ready for what? An auto company's reputation, for better or worse, is built on what it delivered in the past, and Chrysler was all about innovation, flair, and unique products: the first family-hauling minivan, Jeeps that handled any terrain and weather condition, fresh, eye-catching packages such as the PT Cruiser and the 300 sedan. But the "new" Chrysler was shaping up as a completely unknown quant.i.ty.

The sale was set to close on August 3, with a big celebration planned at the tech center three days later. Chrysler's employees were a resilient bunch. The shock of the Daimler divorce had worn off, and people were getting swept up in the excitement of American ownership again. The name Cerberus had meant little to them a few months before. Now the three-headed dog from Wall Street was their designated savior.

But Chrysler's new absentee owner operated in the shadows. Besides LaSorda, no one at Chrysler knew anything about Bob Nardelli coming in as its new chairman and chief executive officer. In fact, press releases had already been written in Auburn Hills announcing Bernhard as the chairman and LaSorda as the chief executive. Because Nardelli was Feinberg's big secret, Chrysler's PR staff couldn't caution the media against prematurely reporting the Bernhard-LaSorda leadership team. Virtually everyone inside thought it was a done deal-until the Sunday night before the announcement, when Nardelli's appointment leaked out.

Instead of a rush of positive publicity heralding the dawn of Chrysler's new era, every newspaper and television station ran with the bolt-from-the-blue choice of this unexpected CEO. They focused predictably on Nardelli's messy exit from Home Depot, his gigantic severance package, and his shot for a comeback in Detroit. Cerberus's secrecy had backfired badly. Chrysler's resurrection wasn't the first-day story. It was all about Nardelli. The New York Times put him on the front page under the provocative headline "Once Tainted, Now Handed Chrysler Keys."

The postsale celebration was a ch.o.r.eographed extravaganza. Just after noon on August 6, thousands of employees were ferried by buses to the front lawn of Chrysler's fifteen-story headquarters tower. There was a concert-style stage and a big video screen that beamed out congratulatory messages for the "New Chrysler" from celebrities such as NASCAR legend Richard Petty. When LaSorda came out to speak, acrobats rappelled down from the top of the tower, doing flips and dancing along the side of the structure. "This is the day we've all been waiting for," LaSorda said, "the first day in the life of our incredible new company!" On cue, loud fireworks and colored streamers exploded from the rooftop, eliciting wild cheers from the throng of workers down below. It was a hearty party in the hot summer sun, with free ice cream and rock music and the ceremonial replacement of the DaimlerChrysler signs with Chrysler's traditional bright-blue, five-pointed-star logo of old.

But the crowd didn't quite know how to react when their new leader appeared for the first time. A smattering of polite applause greeted Nardelli, who wore a crisp white shirt and dark suit as he stepped onstage. Stocky and of medium height, with a high, broad forehead, square jaw, and deep-set blue eyes, Nardelli came off pretty stiff addressing the troops, like he was reading from a script. "As a private independent company, we'll move forward with speed and a renewed focus on meeting the needs of our customers," he said.

He wasn't much looser in the press conference afterward. Nardelli made a point to put his hand on LaSorda's shoulder and deferred to him on specific questions. When pressed on what Cerberus had in store for Chrysler, the new chief executive refused to open up. "I come here today, my first day, with a fresh approach," Nardelli said. "I don't come with mandates." He emphasized, however, that any changes would happen quickly. "We have the ability to move with speed," he said. And when the topic turned to Home Depot and his big severance deal, he said he hoped that controversy would fade away as soon as possible. "The last thing I would want to be," he said, "is a distraction."

Contract talks between the Big Three and the United Auto Workers open with a ritual. The chief executive and his labor negotiators meet the union president and his bargainers in some drab, windowless room at corporate headquarters. Then as photographers aim their cameras, the CEO reaches across the long table and shakes hands with Ron Gettelfinger. The ceremony dates back decades, and the forced smiles in the photos always look the same. It's the Detroit equivalent of two boxers touching gloves at the start of a fight. Shake hands-then come out swinging.

It seemed that every four years a new contract was called a watershed moment for the industry. But these negotiations could not be overhyped. Detroit had undergone its deepest restructuring in twenty-five years. Yet the companies were still losing enormous sums of money. The so-called legacy costs had outstripped the Big Three's ability to pay them. Even after the landmark health care deal, GM was still spending $4.8 billion a year on medical coverage for more than a million employees, retirees, and dependents-an average of $9,000 every minute of every day. Every two seconds, GM paid for a prescription somewhere in the United States; every second it paid for some medical procedure. And there was no end in sight. Its health care obligations going forward for retired union workers and their spouses were estimated at $47 billion. No matter how much GM improved its products, it could never sell enough cars and trucks to cover those costs.

All three companies went into the 2007 negotiations with the shared goal of getting retiree health care off the books once and for all. It would be incredibly expensive to do so. The idea was to create trusts, fund them with colossal amounts of cash and stock, and let the UAW administer its own medical coverage to retirees. The term for the trusts was "voluntary employee beneficiary a.s.sociation"-VEBA for short. During the 2005 health care talks, GM had balked at going for a full-scale VEBA because it was too complicated and Wagoner was under pressure to deliver savings quickly. But now it was paramount. Without a health care deal, the chances that GM would be forced to go bankrupt increased exponentially. As GM's labor team girded for the challenge ahead, Wagoner laid out the stakes. "We need to do this on our own," he told his executives. "We don't need the courts. We don't need outsiders. We can figure this out."

Once again, Fritz Henderson would play a key role. Troy Clarke, the new head of North American operations, would lead the bargaining team on a broad range of issues. There were other big goals, including lower pay for new hires and doing away with the jobs bank. But it would be up to Henderson to craft the VEBA and sell Gettelfinger on it.

Henderson did a simple calculation that he would often use to dramatize GM's predicament. "One hundred and three," he said. "We have spent $103 billion since 1993 on post-retirement health care and pension contributions. That's $7 billion a year. We spent $7 billion on capital spending globally. So for every $1 on capital spending we spent $1 on legacy costs. It's not the people's fault. It's not the union's fault. But the business cannot withstand it any longer."

He wasn't the only CFO in Detroit who lost sleep over it. He had a close ally at Ford in Don Leclair. The two chief financial officers had developed a strong working relationship. They had discussed potential joint ventures and even brainstormed about how GM and Ford could fit together if they ever had to merge to stay compet.i.tive. Leclair supported the Project Compa.s.s mutual-aid pact in case of a strike. Mulally wasn't completely sold but was willing to keep the option open. Bill Ford was the wild card. Would he stick it to the union by backing GM or Chrysler in a strike? Wagoner and Henderson didn't think Bill would play that kind of hardball. The GM executives knew they could count on Chrysler. But would Ford back them up? "I'm not sure about them," Henderson said. "Don says they'll do it. But I don't see it in their DNA."

Gettelfinger went on offense in the days before the opening handshakes in late July. "We addressed health care in '05," he told reporters. "You don't get two bites at the apple, do you?" But he was posturing. His Wall Street advisors had already studied how much cash and stock the union would need to make VEBAs work. But Gettelfinger knew he couldn't give an inch publicly before negotiations started. Selling the previous health care deal to the union membership had been very, very difficult. At some plants, the concessions pa.s.sed by the slimmest of margins. Gettelfinger had to manage expectations. There were a lot of volatile union locals out there, where plants were closing. Even as he took a hard line, he had to be straight with them. "The kinds of challenges we face aren't the kind that can be ridden out," he told his bargaining teams. "They're structural challenges, and we need new solutions."

The truth was, a UAW member was the most expensive autoworker to support in the world. Something had to give. But if Gettelfinger made concessions, he absolutely needed to get a return. And more than anything he wanted real guarantees to retain real jobs, with commitments to a.s.sign specific products to specific plants. He'd agree to lower wages for new hires if it meant more jobs. He'd even dump the jobs bank if he had to. The union was shrinking and he had to preserve the core. The sale of Chrysler was the latest shock to the system. Private equity firms were circling the industry. Who was to say Ford and GM wouldn't be next? Then there was the biggest nightmare of them all: bankruptcy. And if it could happen to Delphi, it could happen to GM.

They shook hands in late July, and for the first six weeks the union moved slowly and deliberately. Each UAW bargaining team had fifteen negotiators, and they faced off day after day with their counterparts from the companies, plowing their way through the existing four-hundred-page contracts, talking about wages, health and safety issues, absentee rates, job cla.s.sifications, and work rules. But the hard bargaining wouldn't begin until Labor Day, when Gettelfinger would pick one automaker to take on seriously.

GM badly wanted to go first. But it was Gettelfinger's call. He picked the target. Historically, the union chose Ford first because it was the easiest to deal with. But this time around General Motors-hard to believe-was in the best financial shape of the Big Three and therefore the most opportune target for the UAW. Meanwhile, the management of GM, Ford, and Chrysler strategized in conference calls. A sense of collective confidence built among the execs with each discussion. The union was in a tight corner. Refuse a health care deal and possibly drive the companies into bankruptcy? The threat alone was a powerful weapon for the Big Three. And what would be the UAW's answer to that-a strike? Wagoner believed the union wouldn't risk a walkout. Public opinion would turn quickly against the UAW if it shut down Detroit and deprived Americans of their new pickups and SUVs. Still, it was a high-risk bet. GM was using up $1 billion in cash a month. If the UAW walked out, the burn rate would triple. That's where Project Compa.s.s came in. The final figure hadn't been decided yet, but the working agreement was that the other two Detroit automakers would help the company that was stuck with millions of dollars a day to defray its costs.

The key to negotiating a contract is who blinks first. Neither side wants a concession without getting a commitment in return. But by the end of August, nothing had happened on any of the major issues. Labor Day came and went, and the VEBA had barely been talked about. The union was stalling. Gettelfinger was hardly even present at the table. The GM executives were getting rattled by the silence. "What's going on over there?" Wagoner asked Henderson. "What are they waiting for?" Then suddenly, on September 13-the day before the contract would expire-a message was conveyed to the Renaissance Center: Gettelfinger was ready to talk.

Troy Clarke, who ran all of GM's plants in North America, was the first to face off with the union president. As soon as Gettelfinger came into the main bargaining room, he immediately tried to intimidate Clarke. "Do you realize how hard we're going to negotiate?" he said, inching close to Clarke's face. "Do you understand we're not going to bend over backward for you?"

Clarke didn't flinch. "We've got this problem we have to solve," he said. "We have to close this cost gap."

"Do you understand we are not afraid to strike you?" Gettelfinger fired back.

Clarke showed no emotion. He wouldn't raise his voice or react. "Like I said, we have this problem we have to fix," he replied.

That afternoon, Gettelfinger announced the union would focus all its resources on getting a contract first with GM. Within an hour, the talks were going full force. The VEBA was on the table. GM made its initial offer, proposing to fund 50 percent-about $24 billion-of future retiree health care obligations. The union trust would have to invest that amount wisely and make it last.

No good, Gettelfinger said. The union wanted GM to fund the trust by 110 percent-more than $50 billion. That was quite a spread. And the sheer size of the health care obligations created infinitesimal calculations to fight over-inflation rates for hospital stays, actuarial tables for retiree life spans, forecasts for prescription drug costs, flow charts on cancer rates. But the only real question involved the percentage of the total bill that GM was willing to pay. And what would the union decide was enough? Every time the union negotiators-primarily UAW vice president Cal Rapson-pushed for higher VEBA funding, Clarke pulled back on possible job guarantees. It went like that, back and forth, day after day, like a tug-of-war.

Fritz Henderson was now fully engaged. He spent most of his time with the union's Lazard advisors, hashing out how the trust could invest GM's billions to keep retiree medical coverage coming for the next thirty years. "I was always ready on a moment's notice to see Ron when he wanted to talk," said Henderson. "No matter where I was, I would be there in ten minutes."

But Gettelfinger was totally unpredictable. Some days he'd sit in an office down the hall from the bargainers, with the blinds pulled and the lights off, glued to his computer, reading and writing e-mails. Then, without warning, he'd burst into the negotiations and threaten to pull the VEBA off the table if GM didn't give in to the union demands. "You know we're not afraid to strike on this," he said repeatedly. Gettelfinger's behavior confused the GM team. Sometimes he'd blow into the room and tell his negotiators to go home immediately. Then he'd sleep overnight in the office down the hall, using a clear plastic bag stuffed with shredded doc.u.ments as a pillow.

At the end of each day, the existing contract was formally extended for another twenty-four hours. Meanwhile, GM plants around the country were on red alert. With the contract technically expired, a strike could be called at any time. "We've got our picket signs all made up and ready to go," said Tiny Sherwood, president of Local 652 in Lansing, Michigan. "We're just waiting for the word and we're out the door."

Even Gettelfinger's own people didn't know what he would do next. One morning, Rapson came in and sat down across from Clarke. "I'm supposed to be mad at you today," he said with a straight face. "Ron wants me to be angry with you." Little was getting accomplished. The two sides kept arguing and debating over job guarantees at a plant in Wisconsin, the cost of emergency room visits for retirees in fifteen years, the rate of inflation for drug prescriptions. But it was all minutiae. The VEBA was at a stalemate. GM had drawn a line at 65 percent funding. When would Gettelfinger compromise? n.o.body knew but him.

Then on the sixth day of the contract extension, September 20, the union boss threw a hand grenade into the talks. He called for Henderson to come to the bargaining room. "The VEBA is off the table," Gettelfinger said angrily. "We're going to negotiate without it-no VEBA." Then he said the talks were done for the day.

"Hey, we've got a lot to do here," Henderson protested. "We can't go home now."

But Gettelfinger wouldn't budge. "We're done," he told his team. "Go home."

The GM bargainers came back the next morning with an explosive counterdemand. No VEBA? Then the automaker had no choice but to propose what it called Plan B-a series of draconian economic changes including pay cuts of up to $10 an hour, a fourfold increase in health care premiums for active workers, and multiple additional plant closings. It was a Delphi-like package of hurt. Rapson groaned out loud when he heard it. "This isn't going to fly," he said. But the point was crystal clear. Without a health care deal, GM was going to close "the gap" with a wholesale a.s.sault on wages, benefits, and jobs. The UAW bargainers huddled. If they walked out en ma.s.se, that meant a strike was imminent. Instead, the VEBA was put back on the table immediately. GM folded up Plan B. It was never discussed again. There were no more games to be played.

By evening, the hard outline of a VEBA was in place. And with health care getting close, GM started giving on the jobs issue. Plant by plant, the automaker made commitments for new models-the Chevy Volt in Michigan, a new truck in Wisconsin, a small car in Ohio, another SUV in Tennessee. It was like a dam had broken. The union even agreed to limit the time idled workers could stay in the jobs bank and accepted a lower starting wage for new hires, $14 an hour.