At the final dinner, Farley captivated the gathering by recounting his personal journey from Toyota to Ford and his deep family connection to the Blue Oval. "I believe in many ways, the future of Ford is the future of our country," he said. "The work here is simply more important than the work I was doing at Toyota." When he finished, the dealers jumped to their feet and give him a rousing ovation. Then Mulally took the microphone, grinning as though he had just seen one of his players. .h.i.t a game-winning shot. "What do you think of our latest new model, Mr. Jim Farley?" he said, prompting a roar of approval and a second standing ovation.

It was all going according to plan. And Ford's progress was starting to gain more and more attention, especially among investors. On the same day that Mulally addressed the dealers, Kirk Kerkorian secretly began buying blocks of Ford stock-lots of it. He was on his way to acquiring one hundred million shares over the next two weeks. n.o.body at Ford knew about it. But when Mulally returned to Dearborn, there was a message that Don Leclair needed to see him. Leclair had recently had dinner with Jerry York, and York was very interested in meeting Mulally. Would it be okay if he came by Ford headquarters tomorrow?

Sure, Mulally said. Why not?

Chapter Twenty-Five.

Tom LaSorda was getting his pa.s.sport stamped more times than any other auto exec in the world. Every foreign operation Chrysler owned was essentially for sale, and he was constantly on the move, seeking buyers for factories and other a.s.sets to raise money. On the flip side, the company desperately needed new small cars to fix the gaping holes in its product lineup.

He spent weeks at a time traveling, trying to find partners to help Chrysler stabilize. He had been to Korea, China, and j.a.pan multiple times and was close to a big deal-but not an alliance-with Carlos Ghosn and Nissan. In the spring of 2008, LaSorda had landed in Turin, Italy, hoping to sell an engine plant in Brazil to the Italian automaker Fiat. But he came away with a lot more.

He had just met with Alfredo Altavilla, the head of Fiat's global engine division. Fiat wanted to buy Chrysler's plant in southern Brazil, and it also had fuel-efficient engines and compact-car platforms that Chrysler could use. Just as they were wrapping up, Altavilla said, "Sergio would like to have lunch with you." LaSorda didn't need to be told who that was. Sergio Marchionne was the well-known chief executive of Fiat and an emerging star in the European auto industry. "Sure, sounds great," LaSorda said.

He was ushered into a private dining room, and a few minutes later Marchionne came in. Tall but stooped, with tousled, graying black hair, small rimless gla.s.ses, and his trademark black sweater over an open-collared shirt, Marchionne looked more like a car designer than the company's CEO. LaSorda popped up immediately when he walked in.

"Mr. Marchionne," he said, extending his hand. "I'm Tom La-Sorda."

"I know who the f.u.c.k you are," Marchionne said. "Sit down. Let's eat."

All through lunch, Marchionne questioned him: What was Chrysler's plan? Why had Cerberus bought the company? What did it need to succeed?

LaSorda was only too happy to break it all down. He didn't know Marchionne, but he respected his track record. Fiat had turned around quickly under his direction and was making money in the intensely compet.i.tive European market. Plus, Marchionne had negotiated the $2 billion windfall payment from GM for ending an unsuccessful joint venture with Fiat. That alone was a badge of honor.

So LaSorda felt comfortable opening up. "The one thing we need the most is a small-car platform," he said. "I'm really enjoying working with Alfredo, and maybe we can do something else with you."

Marchionne looked at him and got very serious. "Can you survive if sales in the U.S. go below ten million a year?" he said bluntly. "Because if you can't, then I think you've got an issue."

LaSorda wasn't sure he'd heard right. Annual sales hadn't dropped below ten million in the American car market for twenty-five years. For the past five, it had been well above sixteen million. Marchionne was talking about a 40 percent drop-not exactly possible.

"We're pretty sure we're going to be around fourteen, fifteen million," LaSorda said. "And we'll be fine at that."

Marchionne let it pa.s.s. Lunch was almost over. He liked the engine plant in Brazil and blessed that deal. And he liked LaSorda, who he figured must be capable if Dieter Zetsche had trusted him to run Chrysler. But Marchionne was pretty cynical about the company's chances. He knew Chrysler's feast-or-famine history. He saw it as a wounded animal that could perish in a harsh business climate.

"Tom, let me tell you something," he said. "I'm a lot more negative about future sales volumes than you are. In fact, the numbers you are talking about are outlandish. If you think your salvation is coming from the market numbers, you're wrong. You have to not be able to bleed to death at ten million to make it."

Marchionne's a.s.sessment was pretty raw. This guy is a piece of work, LaSorda thought, a real prophet of doom. But the rest of the lunch was all very pleasant. Marchionne invited him to come back to Italy with Bob Nardelli. Maybe then they could talk some more. "We might be able," he said, "to do some business together."

Jerry York felt like a teenager going on a first date. He didn't even try to contain his enthusiasm when he talked to Kirk Kerkorian about Ford. "It's pretty d.a.m.n clear to me that Ford has a huge sense of urgency compared to GM," he said. "They are so f.u.c.king far ahead of them it's not funny." This was finally the right car company, he told Kerkorian. Forget Chrysler and General Motors. This guy Alan Mulally had what it takes. York loved everything Mulally did-borrowing money, stripping off the extraneous brands, fusing the global operations together, betting on smaller cars. And York found a kindred spirit during his conversations with Don Leclair; this was a tough-as-nails CFO after his own heart.

York's mission on April 4 was to break the news to Mulally and Leclair that Kerkorian was considering acquiring a major stake in Ford, while also not revealing that the buying had already begun. York figured that by the end of the month Kerkorian could own at least 5 percent of Ford's stock. Then they'd have to make a public disclosure. But the key now was to explain to Mulally that this was not a takeover or an a.s.sault on management. "It's very important that they know this is friendly," he told Kerkorian. "They shouldn't be antic.i.p.ating anything even remotely hostile."

When York arrived at the Gla.s.s House, he was charming and laid the praise on thick. He told Mulally how much he admired his career at Boeing and what he'd accomplished so far at Ford. Oh, and did Mulally know that York had worked at Ford in the 1970s? York still had fond memories of those days. He tried to keep the conversation as casual and upbeat as possible, and then he sprang the news. "Kirk is interested in investing in the company," he said. "And if we do, we want to support you totally."

Mulally took it all in. He could tell York was extremely intelligent and had done a ton of homework before walking in the door. But he had to play this very carefully. Of course, he told York, Ford welcomed smart investors such as Kirk Kerkorian. The company was changing fast, hitting its milestones, and gaining momentum. He acted very interested in York and asked about his experience on the General Motors board. How had that been?

"It's really not a lot of fun when you're dealing with idiots like that," York said. "Life is too short."

The meeting concluded with a lot of smiles and handshakes, and a promise by York that he would stay in touch.

That afternoon Kerkorian's firm, Tracinda, bought another 6.5 million shares of Ford for $42 million.

When Mulally told Bill Ford that York had come to see him, Bill was shocked that he hadn't been informed of the meeting beforehand. Didn't Mulally realize who they were dealing with here? But what really set Bill off was when he learned that Leclair had been talking to York one-on-one for weeks. He could be fired for that offense. The chief financial officer was in no way authorized to hold private conversations with a representative of one of the most aggressive investors in America.

When Joe Laymon heard about it, he couldn't believe that Leclair had met with York and hadn't disclosed it to the chairman of the board. "He did it without Bill's knowledge?" Laymon said. "s.h.i.t, we might have to let Don go."

But Bill did not make moves in panic. Kerkorian hadn't done anything provocative yet. Ford was in for a tense waiting game now. And for the first time, Bill felt a twinge of doubt about Mulally's judgment. Meeting with York without first telling him and the board was a dangerous precedent. It could not happen again under any circ.u.mstances.

That was the effect Kerkorian had. He created an immediate distraction and concern to the management of any company he took an interest in. Kerkorian was never a pa.s.sive investor. He had one goal when he bought a big stake in a business: "I just want to make money on my investment," he said.

York's motivation was slightly different. He wanted to be part of a successful auto company. He loved the industry; he always had and he always would. Ford was a fantastic opportunity. "Alan Mulally has the right stuff," he told a friend in Detroit. "He is going to do whatever it takes to fix Ford. I'm just blown away by this guy. He is forcing teamwork on these people. I couldn't stop thinking about it for twenty-four hours after I met him."

But even with Kerkorian moving in, the management team at Ford wasn't going to slow down. The company was determined to earn a profit in the first quarter. A profitable quarter would be a huge internal morale boost and would set Ford apart from the two other struggling Detroit automakers. It was, however, going to be very close.

On April 24, Ford surprised Wall Street and most of the auto world when it reported a slim $100 million profit on $39 billion in revenue in the first three months of the year. The company still wasn't earning money in North America, but the overall performance was what Mulally called a "proof point" that the plan was working. "More progress will be made in North America," he promised. "We are going to get to our $5 billion cost reduction goal by the end of this year." Then Mulally pledged that Ford would be solidly profitable in 2009. He didn't have to say that, and some company insiders wondered why he did. But Ford had the hot hand now. Why shouldn't he pump up the enthusiasm with a powerful promise of more success to come?

The next day, York contacted Leclair and told him that Kerkorian would go public with an offer for a significant amount of Ford stock in the very near future. And on April 28, the ninety-year-old billionaire announced in a federal filing that he had purchased one hundred million Ford shares for $691 million and was prepared to pay $8.50 a share in cash to buy an additional twenty million. That would give Kerkorian a total stake of about 5.5 percent in Ford and a prominent voice in the company's future.

After the federal filing, York started giving interviews about Mulally and the Ford comeback. Kerkorian, he said, was making a long-term investment in a great American car company. "We don't care what happens in the next two or three quarters," he said. "What we're looking for is a big, big hit five, six, seven years down the road."

He dismissed questions about whether Kerkorian wanted to take over the company. That was ridiculous, York said. "The reality is the Ford Motor Company has the best poison pill in the world against a hostile shareholder," he said. "And it's called 40 percent voting rights by the Ford family."

Was that where this was headed? Would Kerkorian try to buy out the Ford family? By coincidence, the extended family gathered in Dearborn a few days later for their regular spring meeting. A year earlier, the Fords had made a tough call to reject strategic advice from Wall Street bankers. But there was no dissent in the family now. They were united against Kerkorian. Bill Ford gave an impa.s.sioned speech to his relatives and a.s.sured them that n.o.body could bring down the family but themselves. The Ford Motor Company was their destiny, he said. Kerkorian could buy all the stock he wanted. But as long as the family held firm, they were in control. Mulally attended the meeting too, primarily to give a glowing update on the turnaround. He was not involved in the discussion about Kerkorian. That was a family matter.

While Ford's fortunes were rising, GM was running into a ditch. On April 30, it reported a stunning $3.2 billion loss in the first quarter. Red ink was everywhere. The strike at American Axle cost $800 million. Delphi sucked up another $700 million. Losses at GMAC were nearly $300 million. Crashing sales of pickups and sport-utilities put another big dent in its U.S. market share, which had now slipped below 23 percent.

"All the things we've done were necessary and important," said Fritz Henderson. "But we've got to do more." He cut truck production by almost 140,000 units in the second half of the year, which would force temporary layoffs and fewer shifts in the plants. And the financial vise was tightening. GM's cash reserves had fallen precipitously low; it now had about $25 billion. That figure alone kept Henderson and GM's new chief financial officer, Ray Young, awake at night. The company needed a bare minimum of $10 billion on hand just to stay in business and maintain its rolling schedule of paying suppliers for parts. But what happened if operations kept devouring money? The debt market on Wall Street was getting worse, not better. And there was no possible way GM could cut enough production or costs to balance out the losses.

The new sales environment was frightening. Once gas pa.s.sed $3.50 a gallon, consumers stampeded into smaller cars as never before. One in five vehicles sold in the United States in April was a compact car. A decade before, the number of smaller vehicles was one in eight. Tiny models such as the Honda Fit and Toyota Yaris saw their sales soar 50 percent. For the first time in memory, vehicles with fuel-sipping four-cylinder engines outsold bigger V-6s and V-8s.

Meanwhile, truck sales were down 17 percent overall for the month. The sales specialists at the companies were awestruck. They had never seen this before. "It's easily the most dramatic segment shift I have witnessed in the market in my thirty-one years here," said George Pipas, the chief market a.n.a.lyst at Ford. Consumers weren't just rushing to get fuel-efficiency; they were bottom-feeding on price to weather the economic downturn as well. "We wanted to have good fuel economy, but we were equally concerned about the price of the car," said John Shelby of Phoenix, Arizona, the new owner of a $15,000 Honda Fit.

Rick Wagoner huddled with Henderson, Young, and GM's outside financial advisors, including his close friend Jay Alix, a Detroit restructuring guru who helped clean up the post-bankruptcy messes at corporate disasters Enron and WorldCom. Big decisions were mandatory. GM had decided to close four truck plants, two of which had been guaranteed future vehicles in the UAW contract. Product development had to be scaled back substantially, with the exception of small cars and the Chevy Volt plug-in hybrid. Hummer, the poster child for monster sport-utilities, needed to be sold, and other brands were in jeopardy. At a meeting of the Automotive Strategy Board, a monumental call was made to cancel the $2 billion CXX program to replace the flagships of the GM fleet-the supersized Escalade, Suburban, and Yukon SUVs. Even Bob Lutz didn't utter a word of protest. "It would be very difficult in today's environment to spend a couple of billion dollars to do a replacement," he said. "Reality had set in."

It sure had. All the financial machinations, turnaround initiatives, and labor agreements were no consolation. The hull of GM had cracked, and the company could not absorb these losses indefinitely. Internal calculations showed that without an infusion of new cash, General Motors would be insolvent by the fall. Not weak or unstable-insolvent, as in no money to pay the bills.

Inside the Renaissance Center, all eyes turned to Wagoner. The company was entering uncharted territory. Its values and history and size meant nothing now. GM was no different from any other corporation that had badly misjudged its market, spent way beyond its means, and lacked a blueprint for survival that might induce banks, oil-rich Middle Eastern investors, or sovereign wealth funds in Asia to take a flyer by lending it billions. Even Kirk Kerkorian, daring gambler that he was, would rather place a bet on Ford. In its time of need, GM was missing the one attribute that theoretically could save it: credibility.

Wagoner pressed on, and prepared to announce a gigantic corporate overhaul at the GM annual meeting in early June. In the meantime, his board of directors was getting more nervous. "Are we drowning here?" asked John Bryan at one meeting. "You really don't have time to find a solution when you're drowning." A couple of directors, Phil Laskawy and Erskine Bowles, hammered Wagoner with questions about cash flow and the possibility of Chapter 11 as a way out. But Wagoner refused to even discuss bankruptcy as an option. "He really didn't want to talk about it or prepare for it in any way," said Bryan. "It was not within his imagination to run scared or rally the troops with the threat of bankruptcy. It was anathema to him."

To Wagoner, this crisis was a test of will, brains, and stamina. The great teams don't throw in the towel when they're losing. They grit their teeth and step up to the challenge. In the midst of the war- room meetings and late-night strategy sessions, he would share his convictions in a way he never had before. On May 13, he stepped to the microphone in the middle of the football field at Wallace Wade Stadium in Durham, North Carolina, to give the commencement address at Duke University, his beloved alma mater. Duke was in Wagoner's blood; his father, his wife, his sister, and his oldest son were graduates, and another son was a junior at the school. He'd even named his dog Duke. This was where he learned a lifetime of lessons about hard work and achievement and contributing to society. And he wanted all of these promising young college graduates to know that even the chief executive of General Motors sometimes had to dig deep to triumph over adversity.

"A year and a half ago, some of the so-called experts were claiming General Motors was headed for bankruptcy, and I ought to be fired," he told the throng of graduates and parents, academic deans and professors. "Those were tough days for me." There would be difficult days ahead for all of them at some point, Wagoner said. That was when strength and character would rise to the top. "So my advice is simple," he said. "Go at life every day with pa.s.sion and enthusiasm. And when challenges arrive, simply do not give up."

When the price of gas topped $3.80 a gallon in May, pickup sales dropped an astonishing 30 percent. SUVs were even worse. Jim Farley gaped at the numbers like a scientist studying the damage from an epic earthquake. "What we are looking at right now is an incredible, once-in-a-lifetime shift," he told his fellow Ford executives. "We can't speculate where it will go. We just have to deal with it."

The euphoria that resulted from reporting a profit a few weeks earlier had evaporated entirely inside Ford. If this catastrophe wasn't met head-on, there wouldn't be any profits to celebrate for a long time to come. This was not a question of working harder or simply not giving up. This was save-the-company time.

On Sunday, May 18, Mulally summoned his senior executives for an emergency meeting in his office. Gas would hit $4 a gallon any day. There were two choices-ride it out and keep the plants working or drastically scale back truck production. "What can we do to deal with this, to move quickly?" Mulally asked.

They went around the room-Fields, Farley, Leclair, Kuzak-until everyone had weighed in. They all agreed to cut back big-time. A quarter of a million trucks and SUVs were slashed from future production schedules, and they would keep making adjustments if the situation got worse. "We are going to crank up the process," Mulally said. "Instead of meeting every week, we're going to meet every day."

On May 22, Ford humbly retreated from its pledge of delivering full-year profits in 2009. Instead, the Gla.s.s House braced for the worst. "We reached a tipping point," Mulally told Wall Street a.n.a.lysts in a conference call. "We needed to act now." Not only was pickup and SUV production radically reduced, but Ford was boosting its output of Focus and Fusion cars to appeal to fuel-conscious consumers. That sounded like a wise move to the legions of Ford dealers swamped with unsold trucks. "If you've got one [truck] on the lot," said Doug Erickson, a Ford dealer in Hastings, Minnesota, "you've probably got enough."

The atmosphere in Mulally's now-daily meetings was electric. Veteran execs such as Fields had never seen this level of effort among the leadership team. And Mulally seemed more energized than ever. "How do you handle adversity?" he asked. "You trust the process. Know everything, good and bad. If we know everything, we can collectively go to work on it."

Once again, his relative inexperience in the auto industry proved to be a compet.i.tive advantage. Traditionally, the Big Three reacted to a crisis by pulling back, cutting costs, and holding their breath until normal conditions returned. But why should they ever expect "normal" again? Mulally saw the data, trends, and growth charts from around the world. There was no going back. Ford had to change permanently. He wasn't satisfied just cutting truck production. Ford was going to dig into its cash reserves and retool three or more of its truck plants to build small cars. It would cost billions and take two years to complete. But if that was where the industry was headed, why not go for it? Mulally became so single-minded it was scary. He always bent over backward to be inclusive. But woe to the dissenting voice as the train picked up speed. "When he says we are going to resize this company," said Farley, "you better get on board now."

The GM board met in early June in Detroit to hear how management planned to stop the bleeding. It was an ugly picture. Since the UAW deal eight months earlier, the company's stock price had plunged 60 percent to $17-its lowest point in twenty-six years. GM's stock in total was worth less than $10 billion, compared to Toyota's market value of $150 billion. Another nineteen thousand union workers had taken the most recent buyout packages. And now four truck plants would shut their doors in Wisconsin, Ohio, Canada, and Mexico.

Wagoner, Henderson, and Lutz made presentations to the directors. They all hit the same point over and over: The time had come to put the SUV boom behind them for good, focus on new cars and crossovers in the United States, and accelerate expansion overseas. Wagoner proposed a "strategic review" of the flailing Hummer brand, though he did not recommend an outright sale. But what was there to review? Hummer sales had plunged 35 percent already in 2008, and there was no reason for that to change. It was hard to envision a good time ever again to buy a Hummer or anything else that got twelve miles to the gallon.

Lutz asked for the go-ahead on two new small-car programs and an improved four-cylinder engine, as well as final approval for the Chevrolet Volt, the greenest of all the GM vehicles in development. The directors approved it all. And George Fisher added a special coda to the package-another public vote of confidence for Wagoner and his troops. "GM has the best management team to get us through these difficult times," Fisher said.

GM was taking some big steps, but Ford kept taking even more. It announced a second round of production cuts, and astounded the industry by delaying the launch of the new F-series pickup by a full two months. This was highly unusual. All the suppliers were ready, the materials had been purchased, and the plants were prepared. Dealers were even taking orders from the few hardy pickup buyers anxious to get into the new model. But the Ford team was not about to risk flooding the market with new F-150s as long as gas prices kept climbing. It was a very tough call. The new pickups were a big potential source of revenue at a time when volume was falling off. Mulally, however, was determined to steer through the crisis first before flicking the switch on the F-series.

He was also working his way through the delicate situation with Kerkorian, who had formally commenced his tender offer for twenty million more Ford shares. The memory of that first meeting with Jerry York still stung Mulally. Ford felt it necessary to put out a statement denying that York had explicitly told him of Kerkorian's interest in taking a stake in the company. York's comments were considered "off the cuff" and had not been taken seriously, the statement said. Anyone who knew York would have found it hard to fathom that he would make casual remarks about investing Kerkorian's money.

But Kerkorian had become a nuclear issue inside the Gla.s.s House, particularly after he disclosed in a federal filing that he would be willing to lend Ford money to aid in its turnaround and to provide it with "business strategies." Bill Ford and some directors were extremely concerned that Kerkorian and York would try to sweet-talk Mulally into listening to their plans to improve Ford. Bill also knew that once that door was cracked open, Kerkorian's influence over the company could grow considerably.

Bill had to grab hold of the Kerkorian situation. This was out of Mulally's realm of expertise. He had more than enough to handle in keeping Ford afloat. A summit meeting was scheduled between the Ford side and the Kerkorian camp for June 17 at the Bellagio in Las Vegas. Bill hoped it wouldn't be a showdown. But he'd be ready if it was.

"What do you think it would cost to buy out the Ford family?" York asked a confidant in Detroit. "A billion dollars for all the cla.s.s B stock? That's double what it's worth on the market. I'm not so sure these people wouldn't take it."

Technically, the cla.s.s B shares were legally nontransferable beyond family members. So n.o.body could buy them and gain the same 40 percent voting power the Fords had. But the shares could be bought and taken out of the family's hands, which would open the playing field for an aggressive investor to grab control of the company with a big block of common shares.

But York wasn't making any decisions about taking over Ford; Kerkorian was. And Kerkorian wasn't going to make another move with Ford until he had personally met Mulally. If he was going to bet big on Mulally, he wanted to look into his eyes, feel the grip of his handshake, and hear him describe his vision. "I only knew Alan through Jerry's eyes," Kerkorian said. "I wanted to see for myself."

They met in one of the palatial high-roller suites at the Bellagio. Kerkorian, York, and Kerkorian's lawyer, Terry Christensen, sat on one side of the table, with Bill Ford, Mulally, and Leclair on the other. They were joined by a surprise guest-Richard Manoogian, a longtime Ford director. Bill had brought Manoogian along because of his long relationship with Kerkorian. They were both Armenian Americans and deeply involved in charitable activities related to their heritage. It was just a little extra insurance in case Kerkorian tried to muscle the Ford contingent.

But he wasn't like that at all. Kerkorian was soft-spoken, courteous, and generous in his praise of Ford. "I'm in this for the long haul," he said. "I want to be supportive of you all the way."

Bill asked what he thought of the Ford family and its stewardship of the company.

"I think it's great," Kerkorian said. "I think family ownership is a strength."

York and Christensen mostly kept quiet. This meeting was clearly for their boss's benefit.

And Mulally was very enthusiastic about meeting Kerkorian. His eyes lit up at the opulence of the Bellagio, and he clearly enjoyed taking Kerkorian through Ford's transformation plan. "We are saving an American icon," he gushed.

It was all over in an hour. Bill still wasn't sure what to expect next. But he had to hand it to Kerkorian. He was smooth. "He really sounded like he wants to be supportive," Bill said.

Kerkorian was pretty pleased with everything. After his disappointment with General Motors, these guys from Ford were like a breath of fresh air. "Boy, I really like Alan Mulally," he said. "And I think they like us."

Chapter Twenty-Six.

Bob Nardelli wanted a small car so badly he flew to Italy in a body cast to see Sergio Marchionne. The Chrysler chief executive had been spending one of his rare weekends at his home in Atlanta, getting ready for his son's wedding. He was working out his frustrations after a long conference call with Auburn Hills and moving big cast-iron pots around his yard when he heard a pop, pop, pop, pop in his back and fell to his knees. Nardelli ended up in the emergency room with broken bones in his back and on the operating table a few days later.

Now he was in a removable cast and in extreme discomfort, and getting on the Chrysler corporate jet in Michigan to meet Tom La-Sorda in Turin. Nardelli's staff was pretty amazed. He hadn't been able to walk after surgery on Wednesday, but he'd been working full-time by Monday morning. And the second he heard Fiat might have a little car ready to sell to Chrysler, he moved fast.

"I've got to come over there," he told Marchionne on the phone. "I need a small car."

LaSorda had been busy hunting for a foreign partner for Chrysler. He had been meeting nonstop with Carlos Ghosn's teams at Nissan in Tokyo and at Renault in Paris-basically the same executives who had discussed an alliance with GM. But so far Ghosn had been wary of entering into a full-scale partnership with Chrysler. Fiat, on the other hand, seemed like a hugely promising alternative to Nardelli. The Italians had exactly the type of cars he needed. But on the Gulfstream jet over the Atlantic en route to Italy, all Nardelli could focus on were the wretched sales numbers coming in for Chrysler and the entire U.S. industry. Even Toyota was getting hammered and was shutting down production at its plants for the first time ever. When oil hit $147 a barrel and gas climbed to $4 a gallon at the pump, Americans essentially stopped buying trucks and SUVs. That was it-the breaking point. Big vehicles were piling up at plants across the country. GM had a 174-day supply of GMC Yukons and Chevy Tahoes, which was some sort of record for unwanted inventory.

And Chrysler was starving on its meager diet of pickups and sport-utilities. Its sales were down more than 20 percent for the year so far, double the drop of the overall market. Nardelli had been cutting, selling, reducing, and redirecting the limited resources Cerberus had given him. But the Jeep, the Ram pickup, the big Dodge SUV-all of Chrysler's main revenue producers-were getting killed. Even the minivan was shunned because its gas mileage was poor. Nardelli was doing what he did best-making decisions. When he saw the June sales numbers, he immediately shut down the big minivan plant in Missouri. He and Jim Press were also deciding which subpar models to cut from the lineup. (Press was ready to get rid of half of Chrysler's cars on the spot.) And to cut costs even further, Nardelli had come up with a grand plan to open engineering centers in China and Mexico.

But Chrysler's balance sheet was just a wreck. It was losing hundreds of millions of dollars, and the only backstop was $10 billion in borrowed money. JPMorgan Chase and the rest of the banks were breathing down Cerberus's neck to get paid back. Feinberg had told his anxious private equity investors to be prepared for "significant risks" and "worst-case scenarios" for their prized automotive trophy.

The three-headed dog was already gagging on its huge losses with GMAC and its minority partner, General Motors. Cerberus may have pulled off the two worst deals in automotive history back to back. It bought GM's finance company right before its residential mortgage unit went up in flames, and then it acquired Chrysler and its weak product line just as auto sales were entering their worst period in decades.

Behind closed doors in his Park Avenue office, Steve Feinberg was kicking himself for taking on Chrysler. The one thing he prided himself on more than anything was timing. "And we really f.u.c.ked that up," he said. "We thought we bought it cheap enough to absorb a lot of economic s.h.i.t, but volume tanked so badly and so fast we were just fighting to keep our head above water."

Meanwhile, James Lee, the big mergers-and-acquisitions chief at JPMorgan Chase, was on Feinberg's back constantly about the loans that Chrysler owed the bank. The debt was a huge problem. If Chrysler ever did make money, Cerberus would have to give it to its lenders first. Chrysler needed new products fast if it was to have any chance to survive. Feinberg had to make a deal as soon as possible. He was spending a lot of time b.u.t.ting heads with Ghosn over his demand for 20 percent ownership of Chrysler in exchange for Nissan cars. "We're not willing to say, 'Here's a large piece of the company and all we want in return is product,'" Feinberg told him. But Ghosn was naturally wary after the charade with Kerkorian and GM. If the Renault-Nissan alliance was getting into bed with Chrysler, he sure wasn't going to get stuck on the short end of a deal.

But whether it was Nissan or Fiat or any foreign automaker, Feinberg needed to find a partner to prop up his not-so-excellent adventure in the car business.

When Nardelli landed in Turin, he went straight to see Marchionne at Fiat headquarters. The building was notable because it had a full-size test track built on the roof. Fiat was more than a hundred years old, a big force in Europe and very strong in South America. The company had established brands-Fiat, Lancia, Ferrari, Alfa Romeo-and unique, reliable small cars that were superior to anything that Chrysler produced.

Nardelli hobbled into the building with the stiff cast on under his suit, aching from the flight but pumped for the meeting. Marchionne was sort of shocked he showed up in this condition. "Bob, are you okay?" he asked worriedly. But Nardelli was excited to talk business. And when he saw the cars in the design center he swooned, especially over the adorable little Fiat 500, rounded like an egg and oozing automotive charisma.

"When could we bring that to Chrysler?" he asked.

That could be possible, Marchionne said, and proceeded to show Nardelli the four-cylinder engines and technology that could really put Chrysler in the small-car game.

But at lunch, they didn't talk much about Fiat. Marchionne was much more interested in discussing Chrysler. He had studied everything about it and knew all its weaknesses. And he had done a deep dive on Nardelli and his Home Depot and General Electric days. "This guy was supposed to be the creme de la creme," he said. He kept pressing Nardelli on the same question he had asked LaSorda. "How are you b.a.s.t.a.r.ds going to survive," Marchionne said, "if sales go below ten million?"

Nardelli didn't have an answer. Marchionne wasn't surprised. This GE guy had no idea he was sitting on a ticking time bomb. In Marchionne's view, Chrysler was going down the tubes if something dramatic didn't change. Nardelli could look and touch his cars and engines all he wanted. But Fiat wasn't doing anything with Chrysler. Not just yet.

By midsummer of 2008, the nightmare scenario was coming to life-soaring fuel prices, a miserable economy, no credit for consumers. This was shaping up as the worst stretch in more than ten years for auto sales, and the market was deteriorating by the day. More than fifteen Big Three a.s.sembly plants were either idled or operating on reduced shifts. Twenty-five thousand UAW workers went on indefinite layoff, as Detroit frantically tried to cut production faster than sales fell. When GM's stock dropped under $10, it dragged down the entire Dow Jones average. The American auto industry was collapsing like a tent in a hurricane.

While Bob Nardelli was flying to Italy, Fritz Henderson was in Europe and Asia getting GM's foreign operations to crank out more small cars to ship to the United States. By July, General Motors had run out of wiggle room. Investors were fleeing the stock, and even the most conservative a.n.a.lysts estimated that GM needed another $10 billion to $15 billion in cash to make it. If this truly was the reckoning in Detroit that had been predicted for so long, Wagoner had to do something to buy GM more time. If he could come up with just one more big restructuring effort, maybe-just maybe-the banks would lend GM enough to stay alive.

On July 15, 2008, the top bra.s.s a.s.sembled for a major announcement at the Renaissance Center. Wagoner, Lutz, and Henderson were front and center. They were flanked by Ray Young, the new CFO, and Troy Clarke, the head of North American operations. At the start of the press conference, Wagoner immediately stated that GM was not going under-not yet. "We are highly confident that we have ample liquidity through 2009," he said. That admission alone was jarring. How could GM make it another eighteen months using up almost a billion in cash every three weeks?

According to Wagoner, the company was going to raise a $15 billion "cushion," primarily by cutting thousands of salaried jobs, suspending its dividend, freezing wages, canceling executive bonuses, and eliminating health care coverage for white-collar retirees over the age of sixty-five. On top of that, it would whack another three hundred thousand units of truck production, slash marketing costs (including dropping its giant NASCAR and pro golf sponsorships), cut spending on new products by 20 percent, and delay its first big payment into the UAW health care trust. The cuts, Wagoner said, would save GM about $10 billion. Then the company hoped to raise another $5 billion by selling anything and everything it could-the rest of GMAC, real estate, Hummer, and maybe other brands too. Last but not least, it would attempt to borrow whatever it could on Wall Street, using a.s.sets both in the United States and internationally as collateral.

It sounded like GM was burning the furniture so it wouldn't freeze to death. Lutz swore the company would not compromise the quality of its new models, but that was hard to believe. These were survivalist tactics, the first time the company had cut capital spending this much since the recession of the early 1990s (something Alan Mulally and Bill Ford pledged never to do).