LaSorda methodically went through the challenges Chrysler faced. After his speech, people fired pointed questions at him about how poorly the American division was performing. LaSorda promised to stop the bleeding. "This happened on my watch," he said. "And I'm going to fix it."

Zetsche, however, had been planning in secret for months to sell off Chrysler. The process kicked into higher gear after the UAW rejected health care concessions. During the Paris auto show, Zetsche had met with Carlos Ghosn to gauge any interest the Renault-Nissan alliance might have in Chrysler. Ghosn was intrigued but had not yet completed discussions with General Motors. "Let me finalize everything," he had said. "And then we can talk." But Zetsche was not waiting. Even as LaSorda and his team prepared their survival strategy, DaimlerChrysler had engaged investment banker JPMorgan Chase to quietly scout for potential buyers for Chrysler.

Chrysler's fall from grace was sudden and swift-particularly because it came on the heels of a remarkable comeback.

During the five years that Dieter Zetsche was Chrysler's chief executive, the company had risen from the chaos of the ugly transition period following the 1998 merger with Daimler. The combination of the two companies was never the merger of equals it was supposed to be. Daimler's CEO, Jurgen Schrempp, had executed a takeover in disguise, stacking all of the authority and power at newly formed DaimlerChrysler in Germany.

The first two American executives to run Chrysler after the so-called merger were fired, and emotions ran high in Auburn Hills when employees realized their fate was in German hands. But in early 2000, Zetsche and his swashbuckling deputy, Wolfgang Bernhard, arrived from the Mercedes division with a plan to bring order and restore morale at Chrysler. It was tough going at first; Zetsche was vilified for closing plants and cutting jobs to streamline the organization. But then he and Bernhard set out to improve Chrysler's quality and invigorate its product lineup. And they hit the jackpot with the first flagship car they turned out-the audaciously statuesque, unashamedly powerful, in-your-face Chrysler 300.

It quickly became the hottest car Detroit had made in years. With its striking rectangular grille, glitzy interior, and high-revving Hemi V-8 engine, the 300 was a pseudo-luxury car with an att.i.tude. Cheaper than the big European sedans but way cooler than bland j.a.panese models, the 300 was the ride of choice for rappers, athletes, and Hollywood hipsters. One of the first 300s off the line was specially requested by Snoop Dogg, the hugely popular star of the L.A. rap scene. Snoop later became an unlikely spokesman for the company by starring in a TV commercial with none other than Lee Iacocca.

Snoop and Iacocca's ad was funny and timely. It was staged on a golf course in Southern California, where the lanky, diamond-studded Snoop teed off with the gray-haired, eighty-year-old Iacocca. When Iacocca said that "everybody gets a great deal" on a new Chrysler, the goateed Snoop agreed in his unique street lingo. "Fo-shizzle," he replied, "Ica-zizzle."

The 300 was an overnight sensation. Its annual sales exceeded those of GM's entire stable of Cadillac cars. The results gave Chrysler a halo of style and urban buzz that GM and Ford sorely lacked. And the expressive, mustachioed Zetsche became a star in the Motor City, outshining charisma-challenged Rick Wagoner and old-money Bill Ford. Unfortunately, the magic of the 300 didn't rub off on Chrysler's other new models. Its bread-and-b.u.t.ter minivans, Ram pickups, and Jeeps still sold well, but a new line of sporty wagons flopped, and its midsize cars were woefully uncompet.i.tive with the high-quality Toyotas and Hondas on the market.

Zetsche's biggest mistake was expanding the Jeep lineup to smaller, less robust SUVs that got better gas mileage but seemed wimpy compared to the rugged Wranglers and Grand Cherokees the brand was known for. By the time Zetsche moved back to Germany to succeed Schrempp at the end of 2005, Chrysler's resurgence was beginning to fade. Its factories were cranking out too many models with paper-thin profit margins. Tom LaSorda-low-key, industrious, and uncomfortably stiff in public settings-didn't have the product savvy to come up with another hit like the 300. And in the summer of 2006, the market turned on Chrysler with a vengeance. Rising gas prices crippled sales of its stalwart trucks and sport-utilities, inventories skyrocketed, and, like at General Motors and Ford, the losses started piling up.

Now the situation had turned dire. The German side of DaimlerChrysler was fed up, from the top-level management board on down to the Mercedes engineers and managers. LaSorda, a nuts-and-bolts manufacturing veteran who had spent most of his career at GM, was ill-equipped to turn Chrysler around quickly, even though he had to give it his best shot. On October 16, LaSorda and his top sales executive, Joe Eberhardt, met with Chrysler dealers and virtually begged them to put in orders for the tens of thousands of older-model cars and trucks sitting in storage lots all over Detroit. To entice them to play ball, Chrysler offered $1,500 in cash per vehicle to close deals with customers. But even the new rebates didn't help sales.

More heat came from Stuttgart when teams of Germans from the Mercedes division began arriving in Auburn Hills to a.s.sist in Project Refocus-an efficiency drive intended to cut a thousand dollars in costs out of each car Chrysler made. There was irony in the fact that executives from Mercedes, one of the highest-cost producers among all the auto brands in the world, were supposed to help Chrysler find ways to save money. Employees at the Chrysler Technical Center wondered why Germany was suddenly taking such a keen interest in its ma.s.s-market cars and trucks. They got more suspicious when they learned that Rainer Schmuckle, the powerful chief operating officer of Mercedes-Benz, was leading the effort. Rumors swirled that Schmuckle was standing by to replace LaSorda if Chrysler's tailspin got worse.

On the morning of October 25, the depths of the troubles were made public. Chrysler announced that it had lost $1.5 billion in the third quarter, driving down the entire corporation's profits by 37 percent from a year earlier. DaimlerChrysler's chief financial officer, Bodo Uebber had flown to Auburn Hills to oversee the earnings release. That was unusual; he had rarely done so before. After the announcement, Uebber, LaSorda, and several staffers gathered around a table on the fifteenth floor of the Chrysler headquarters tower to field questions on a conference call with a.n.a.lysts and the media. When one a.n.a.lyst asked whether there was any possibility of Chrysler being jettisoned, Uebber spoke up. "We don't exclude anything here," he said.

Jason Vines, Chrysler's chief of communications, noticed that the Germans in the room all nodded in approval. "I'm looking at LaSorda, going, 'What the f.u.c.k?'" Vines said.

LaSorda appeared baffled. When Uebber was pressed to explain further, he said the Chrysler situation was under study and no conclusions had been reached. "We don't exclude anything," he said again. "We need to safeguard sustained profitability for the Chrysler group and for DaimlerChrysler."

When Vines heard Uebber say that, he bolted from the room to his office. His frazzled secretary said he had gotten fifteen phone calls from journalists within five minutes. All of them had asked if Chrysler was on the auction block. It took hours before the overall head of DaimlerChrysler communications, Hartmut Schick, issued a statement saying, "There are no plans to sell Chrysler."

But the word was now out, and it marked a huge turning point. Never in DaimlerChrysler's eight years of existence had a senior executive even remotely suggested in public that Chrysler might be sold. Uebber was arguably the second-most-powerful official in the company after Zetsche, and investors knew he was not a man who made casual remarks. "It wasn't a slip by Bodo Uebber," said Willi Diez, head of the Auto Industry Inst.i.tute in Germany. "Those remarks were placed to open the discussion."

The reaction was instantaneous, triggering a 5 percent surge in DaimlerChrysler's stock over the course of the day. Apparently the company was worth more to investors without a struggling Detroit carmaker wrecking its profits. In interviews afterward, Zetsche was strangely vague when asked how much time Chrysler had to get back on track. "Sometime toward the end of the year we should start to get a clear picture," he said. "And sometime in the beginning of next year we should be at a point where we can inform the public about what we will be doing."

Soon after the press conference, Zetsche finally took LaSorda into his confidence. "Chrysler needs another partner," he said. "That's the only way it will survive." LaSorda was stunned. He knew about the overtures to Ghosn in Paris, and he had been very involved in joint-venture talks with a Chinese automaker to provide a small car for the U.S. market. But he had no clue that Chrysler was at such a precipice.

Zetsche told him that Rudiger Grube, the company's top corporate strategist, was involved in the plans and might need his input if a deal was going down. But otherwise, Zetsche told LaSorda to keep his mouth shut, pretend nothing was amiss, and stay focused on the business. "Keep the blinders on," Zetsche said. It would be hard enough to find a buyer for Chrysler and a lot more difficult if it deteriorated further.

There's an old saying in Detroit: "It's your turn in the barrel." The point is that at least one of the Big Three is always hurting and drawing negative attention, while another is on the rise. Chrysler and Ford were tumbling down, but in late 2006 General Motors was surprisingly on the rebound. GM's third-quarter loss had narrowed to just $115 million, which was a significant improvement over the billions it had been losing. The company also had promising new products coming, including its first salvo of more fuel-efficient crossovers. "We need to show that when we launch a vehicle-whether it's a car or a truck-that we can have a smash hit," said Fritz Henderson. Even though GM was looking good compared to Ford and Chrysler, Henderson cautioned that the turnaround wasn't solid yet. "We're a long way from finished here," he said. But with Jerry York now off the board and Renault-Nissan out of the picture, GM had rea.s.sumed its customary spot atop Detroit's hierarchy.

GM's return to dominance was clear when the Big Three chief executives went to Washington on November 14 for a long-antic.i.p.ated meeting with President George W. Bush. Rick Wagoner had been pushing the hardest for the sit-down in the White House, and he pretty much set the agenda with his public comments about health care reform and trade policy. Alan Mulally and Tom LaSorda were new at their jobs, so they didn't carry nearly the weight that Wagoner did.

The White House meeting was a seminal event. President Bush had been critical of Detroit's products and reputation in the past, but he showed some empathy and support after talking with the CEOs. "These leaders have been making difficult decisions, tough choices to make sure their companies are compet.i.tive in a global economy," Bush said. "And I'm confident that they are making the right decisions, and that's good news for the American people." Vice President d.i.c.k Cheney and Treasury Secretary Henry Paulson also attended. Paulson was the first administration official to emerge from the White House after the session. His only comment: "Interesting meeting."

After a tumultuous year, Wagoner was once again the leader of the American auto industry. Now that the buyouts were taken care of, his next major hurdle was getting retiree health care completely off the books. Wagoner agreed with Dieter Zetsche that the three companies had to stand firm together to relieve themselves of their crushing legacy costs. He knew he could count on Chrysler in that regard, but he wasn't so sure about Ford.

Wagoner felt a little sorry for LaSorda because Chrysler was obviously a mess. He also considered Zetsche a friend and missed their give-and-take about the industry, the union, and the future. He could kick back with his German counterpart and talk man-to-man about the challenges of running a car company in Detroit. One time, when Zetsche was venting his frustrations about the Big Three's reliance on expensive cash incentives to move vehicles, Wagoner jokingly said he had a lot to learn. "Stop whining, Dieter," he said. "You don't understand." On the other hand, Wagoner was just getting to know Mulally. Joe Laymon had brought Ford's new chief executive over to meet him, and Mulally asked a ton of questions about how GM was organized and managed. Wagoner wished him well and hoped he would be a positive influence at Ford when the 2007 labor talks got under way.

But Wagoner didn't have time to worry about the other guys. It was, as they say, their turn in the barrel. He had held tight onto the reins at GM during a difficult stretch. Though he would never admit it in public, the pressure in the boardroom and constant criticism in the media had taken a personal toll. He was stressed about how it affected his wife and three sons. At one point, his sister started hiding negative articles about him from their elderly mother.

"Rick went through a lot," said Steve Harris, his communications chief and good friend. "But he never complained." Henderson marveled at Wagoner's self-control when Jerry York was trying to get him fired. "He was too much of a gentleman to say anything," Henderson said. "That's just the way Rick is."

And after standing tall during the storm, Wagoner's fort.i.tude paid off when Kerkorian bailed out on GM. On November 22, the Tracinda Corporation announced that it had sold fourteen million shares of GM stock for $462 million, cutting Kerkorian's stake in the company to below 8 percent. After York quit the board, Kerkorian had considered a counterattack on GM, possibly in the form of a proxy battle to elect a slate of directors and challenge for control.

But the billionaire financier didn't care to wage a long, protracted battle with slim odds of winning. That wasn't his style. Kerkorian operated on instinct, nerve, and an uncanny sense of timing. That's how he rose from a penniless high school dropout to one of the richest men in America. Kerkorian wasn't interested in wasting time on a management team that didn't see things his way. "I want to be with a winner," he said to a friend. "Wagoner has never accomplished anything. They're not going to make it-not if they keep going like this."

GM's stock fell 5 percent on the news that Kerkorian was divesting his shares. But when the price stabilized a few days later, Kerkorian called York. "Let's get out of it," Kerkorian said. On November 30, he sold off his remaining forty-two million shares in two large transactions. It was an unusually quiet and peaceful retreat for such an aggressive investor.

He ended up making about $100 million overall on his eighteen-month bet on GM, which was not the big payoff he was hoping for, but he told York he was "happy with it" and it was time to move on.

GM watchers said Kerkorian's departure had to be a relief for Wagoner and the board, even though there was no guarantee he wouldn't take another run at the company. But for now, the danger had pa.s.sed. "It was the shootout at the O.K. Corral that never happened," said David Cole, the chairman of the Center for Automotive Research.

York wasn't second-guessing himself. He would have relished a proxy fight for control of the GM board. But dumping the stock was Kerkorian's call. York saw more trouble coming for GM anyway. "I don't think Rick Wagoner has it," he said. "There are terrific peacetime officers who can't operate in wartime, and there are wartime generals who can't deal with the politics in peacetime. Rick Wagoner is not a wartime general. And GM is fighting a war."

The day of reckoning was drawing near at Chrysler. Eberhardt was finally relieved of his duties as head of sales and marketing on December 5, 2006. He was let go right after Chrysler mailed coupons to three million consumers worth a thousand dollars toward the purchase of a new Dodge, Jeep, or Chrysler vehicle. Even in rebate-crazy Detroit, that was a sign of desperation.

LaSorda took over Eberhardt's responsibilities. "I'm your new sales and marketing guy," he told six hundred slightly bewildered staffers at a town hall meeting. LaSorda's words hardly inspired confidence in a comeback. Chrysler was clearly groping for answers. The inventory glut had gotten so bad the company shut down six of its big a.s.sembly plants for a month. And on December 20, LaSorda made a tense presentation to the DaimlerChrysler management board in Stuttgart that recommended permanent plant closings and job cuts to save Chrysler. Even Ron Gettelfinger woke up and, realizing that Auburn Hills was in deep trouble, offered to reconsider the union's rejection of health care relief. But that was hardly enough to change Zetsche's mind. Chrysler had to go, and the sooner the better.

Zetsche reached out to the one auto executive who he thought could make good use of Chrysler-Rick Wagoner. They met in secret in New York, and Zetsche made his pitch. Chrysler was available for sale immediately, and it wouldn't cost much. The bottom line was for the German side to get out from under the UAW pensions and health care obligations. And he made compelling arguments for General Motors to buy Chrysler. "There are plenty of synergies if we put the two together," Zetsche said. The Jeep brand was still strong in SUVs, and adding the Ram pickup would give GM an incredibly dominant position in the truck market. Chrysler also had some very capable engineers and designers, modern plants, and successful dealers. It would be relatively simple, he told Wagoner, for GM to absorb Chrysler's capacity, its best products such as the 300 sedan, and its state-of-the-art technical center without taking on the baggage of its administrative staff and executives.

Zetsche couldn't tell what Wagoner was thinking by looking at him; he never could. And the GM chief executive rarely made decisions on the spot. But he surprised Zetsche when he said the plan had merit and promised to take the proposal to his board. A few days later, Zetsche got the response he was hoping for when Wagoner called and said the GM directors had authorized him to enter into formal discussions about buying Chrysler. Zetsche could hardly believe his ears. This could solve all his problems. Beyond that, if General Motors bought Chrysler, it would be a blockbuster deal, a game-changing event in the history of the American auto industry. The idea that Detroit's Big Three could become the Big Two was now a distinct possibility.

But just when Zetsche was approaching GM, another attractive option had come up from an unexpected source-Jurgen Hubbert, the distinguished retired head of Mercedes-Benz. Zetsche nad Hubbert were old friends and colleagues. In fact, Zetsche had worked for Hubbert for several years before and after the Chrysler merger. In the midst of the Chrysler crisis, Hubbert came to see Zetsche in Stuttgart.

"Would you be willing to have a meeting with some of the European guys from Cerberus to talk about our company?" Hubbert asked.

"That sounds fine," Zetsche said.

Zetsche had no idea how Hubbert became the messenger, or that the German office of JPMorgan Chase had established close contact with Cerberus Capital Management, one of the hottest private equity buyout firms on Wall Street. Cerberus had just completed its acquisition of a majority interest in GMAC, the giant financing arm of General Motors. That deal made it a major player in the automotive world overnight. Zetsche was more than willing to hear what they had to say. And at the first meeting, the Cerberus executives wanted to open talks about buying Chrysler. What did Zetsche think of that?

He could barely suppress a smile under his walrus mustache. As Zetsche would recall later with a touch of sarcasm, the timing could not have been better. "As I was already pretty far along in my process," he said, "I was not terribly disappointed by this offer."

Chapter Nineteen.

Hope springs eternal at the Detroit auto show, and the 2007 event was no exception. Sixty new vehicles from around the world made their debut, including the show's first-ever models from China-five odd-looking trucks and cars produced by the obscure Changfeng Group, run by a Communist Party official in Hunan province. Its small display was lost among the Big Three's huge exhibits, and the company's plans to sell products in the United States seemed like a pipe dream. But its very presence underscored the new reality in the global auto industry.

Change was constant. Cars could be built anywhere by anybody and sold wherever people could afford them. No nation had an insurmountable edge anymore. An American, German, or j.a.panese autoworker wasn't intrinsically superior to a Chinese, Russian, or Indian. Rather, they were just more experienced, better-paid, and blessed with safer, cleaner, and more advanced factories.

But the gap was shrinking. The advantages enjoyed by workers in the developed countries were fast becoming a ball and chain of extra costs, wages, and benefits. The underdog nations were hungry, and the traditional powers such as General Motors, Volkswagen, and Toyota were investing in them to gain a foothold where the hottest growth was coming. It was only a matter of time before upstarts such as Changfeng showed up in the United States and Europe, looking for a piece of the action.

The show floor at the Cobo Center was a mosaic of intriguing story lines. How would Ford fare under new management? Was Chrysler falling apart? What did Renault-Nissan do next? Were the Korean twins, Hyundai and Kia, ready to make their big move in the United States?

But the bulk of the attention centered on the heavyweight match between General Motors and Toyota for the t.i.tle of world's biggest auto company. The j.a.panese goliath brought some powerful products to Detroit, including a four-door version of the new Tundra pickup and two high-performance models from its Lexus luxury division. Although company officials weren't confirming it yet, Toyota was also preparing to announce its eighth a.s.sembly plant in the United States.

GM had its own product offensive to brag about: a new midsize, mainstream Malibu, the sharp-edged Cadillac CTS sedan, and a bright orange, seriously s.e.xy Camaro convertible. But its surprise star was a concept car called the Chevrolet Volt-a four-door hatchback that ran on electricity from a lithium-ion battery but could be recharged by a small gasoline engine.

The Volt's unlikely champion inside GM was Bob Lutz, who was determined to prove the company could make more than just gas-guzzling trucks and fast cars. The white-haired former U.S. marine couldn't resist poking fun at environmentalists who blamed Detroit for global warming in the doc.u.mentary An Inconvenient Truth. Lutz cited the film when he unveiled the Volt at a packed press conference. "A GM electrical vehicle is an inconvenient truth," he said with a wry smile.

But he wasn't joking about the company's commitment to claiming the leadership position in new technology. "We have the talent," he said. "And we have the will." They also had a new goal-to get the American public to care about GM, even root for its success.

Internal research showed that many consumers viewed the company as stodgy, slow, and out of touch. During the Detroit show, GM executives tried hard to dispel its ultracorporate, conservative image. Executives had already been crisscrossing the country touting its progressive side as part of the Arlington Project, hatched a year earlier. "There is this perception that we just don't get it, that we're this midwestern, bureaucratic, smokestack kind of company," said Mark LaNeve, the North American sales chief. "That couldn't be further from the truth."

It was a mixed message at best. General Motors wanted to be embraced as an all-American success story, even as it was closing factories across the country and racing to build new ones overseas. And it was hard to generate warm feelings for a gigantic company with a king-of-the-hill mentality. Rick Wagoner made clear that "The General" wanted to stay number one ahead of Toyota. And behind closed doors, Wagoner, Lutz, and Fritz Henderson were studying a move that could keep GM on top for a long time to come: buying Chrysler.

The discussions were just under way and limited to an airtight circle at GM. The same was true on the German side. And at Chrysler, only Tom LaSorda knew what was brewing. n.o.body was more under a microscope at the Detroit show than LaSorda. At Chrysler's press conference, he wore an ap.r.o.n in a skit with celebrity chef Bobby Flay to introduce the company's new minivan. LaSorda and Flay were supposed to be cooking up a spicier and bolder version of the ubiquitous soccer-mom van. LaSorda played his role and got some laughs after Flay said the Chrysler chief executive had been spending "a lot of time in a hot kitchen."

"Thank you for bringing it up," LaSorda deadpanned. "I've got enough press about it already." LaSorda was in a very tough position; he was working on a restructuring plan code-named Project X with executives at Chrysler and Mercedes, while at the same time secretly working with Zetsche to sell the business. The two duties were interrelated. DaimlerChrysler needed a blueprint to cut costs and straighten out its American division fast, whether it was sold or not. And if they did find a possible buyer, the company would be more attractive with a leaner cost structure and better balance sheet. Either way, LaSorda was in the middle of a historic juncture in the American auto industry.

It had been a long time since one of the Big Three was this vulnerable, maybe not since Lee Iacocca went to Washington in 1979 to ask the federal government to guarantee loans to save Chrysler from bankruptcy. General Motors had its extraordinary resources to draw on. Ford was getting money from the banks to fund a turnaround. But Chrysler was stuck in limbo with a parent company that wanted to sell it, a business model that was falling apart, and an uncertain market of potential buyers willing to take a chance on saving it.

On February 13, DaimlerChrysler's supervisory board (the equivalent of a U.S. board of directors) and its senior management landed in Detroit for a critical meeting scheduled the next day. Dieter Zetsche would be announcing the details of Project X: Chrysler was cutting thirteen thousand jobs, closing one a.s.sembly plant, cutting shifts at two others, and reducing the workforce at several other factories. In addition, he would pledge a closer working relationship between Mercedes and Chrysler and promise more fuel-efficient cars and fewer trucks for the U.S. market. The more significant part of the meeting would be a formal vote by the supervisory board to pursue other, unspecified options for Chrysler, including an outright sale.

But the plans went awry at 2:30 A.M. on February 14, when the phone rang in Zetsche's room at the Royal Park Hotel in suburban Detroit. Corporate lawyers were on the line from Stuttgart. A German newspaper had reported that DaimlerChrysler was exploring a possible sale of its struggling American division. The lawyers urged Zetsche to put out a statement immediately, even though the supervisory board was not meeting for hours. Reluctantly he agreed.

Just before dawn, a press release went out. It first quoted Zetsche as saying the company was "looking into strategic options" regarding Chrysler. Then the big news: "In this regard, we do not exclude any option in order to find the best solution for both the Chrysler Group and DaimlerChrysler."

By the time employees plowed through a heavy snowstorm to get to work at 8:00 A.M. in Auburn Hills, the news had gone global. Chrysler was, in effect, officially up for sale. There was no turning back. Zetsche was still furious that the news had leaked in Germany, but that hardly mattered now. During a tense press conference at Chrysler headquarters, he and LaSorda tried to dodge direct answers to the barrage of questions: What were the criteria for a sale? Could it possibly be avoided? Had talks already begun with potential buyers? Zetsche kept repeating the same words from the press release over and over. "Our thinking does not exclude any options," he said in his heavy German accent. "That means all options are on the table."

LaSorda sat stone-faced next to him, trying to show solidarity with his boss about the "options" for Chrysler. "It is something that he and I are teaming up on and we fully endorse," LaSorda said. But that was it. The reporters couldn't pry any real details out of them, and not even a hint about General Motors, the investment bankers, or the overtures from Cerberus.

The news rocked Detroit. Nine years before, the Big Three's fraternal circle had cracked when Chrysler hooked up with Daimler-Benz. Now the biggest automotive marriage in history seemed to be heading toward a messy divorce. Employees in Auburn Hills were dumbfounded, huddling in their office cubicles, design studios, and product labs, trying to make sense of it.

"It's pretty solemn in there," Joe Kubina, a Chrysler engineer for twenty-four years, told the Detroit News. "I don't know what to think. I'm still confused by it all."

Not only was DaimlerChrysler on the verge of splitting up, but thousands of workers were on the firing line in yet another brutal restructuring in the Motor City. "Disregard the numbers-real people and real communities are suffering here," said an angry John Dingell, the powerful U.S. representative from southeastern Michigan. After the ma.s.sive cutbacks at GM and Ford, the crisis at Chrysler seemed like a final sucker punch to an industry on the ropes. "We're starting to enter the darkest part of the tunnel," said Sean McAlinden, a labor economist at the Center for Automotive Research.

No one was more irate than Ron Gettelfinger. The union leader felt blindsided and betrayed. He was, in fact, a member of the DaimlerChrysler supervisory board. Under German law, half of a company's governing body represents shareholders and half represents employees. As president of the UAW, Gettelfinger was awarded one of the labor seats. The decision to dump Chrysler had not even been brought before the board until the day of the announcement. In Gettelfinger's view, management was unfairly punishing American workers for the 1998 merger's failure. And the German labor unions, which held several board seats, were throwing the United Auto Workers under the bus too.

Gettelfinger vowed to fight to keep Daimler and Chrysler together. "Today's action by DaimlerChrysler is devastating news for thousands of workers, their families, and their communities," he said. "We will do everything in our power to hold the company to its commitment to grow the business by developing new products with Mercedes-Benz."

But he received no sympathy from his counterpart in Germany, Erich Klemm, a senior official of the IG Metall autoworkers union and the top employee representative on the supervisory board. "We want to ensure that the core of Daimler can be protected from a possible financial downward spiral at Chrysler," Klemm said. "It's clear that the synergy potential between Mercedes-Benz and Chrysler is limited."

DaimlerChrysler shareholders endorsed the possible breakup of the company by bidding up the stock price by 8 percent. "Investors are sick of the losses and the problems," said Jurgen Pieper, an a.n.a.lyst with Metzler Bank in Germany. "They have been pressing for an end."

Almost immediately, industry experts speculated on suitors for Chrysler: Renault-Nissan, Hyundai, perhaps an ambitious Chinese carmaker. But no one could seem to agree on what Chrysler might be worth to another auto company. And what if n.o.body stepped forward? Could Chrysler be spun off and survive as a stand-alone business? No matter what happened, the organization had to keep moving, building vehicles, and selling them while a sword hung over Auburn Hills.

The day after the "all options" announcement, a grim LaSorda addressed his top two hundred executives in a darkened auditorium at Chrysler headquarters. "If we don't deliver," he said, "all bets are off." At least people in the community were pulling for the Chrysler team. The Germans, especially Zetsche, were being viewed as turncoats and traitors, ready to kick Chrysler to the curb when the going got rough. A big headline on the front page of the Detroit News said it all: "Dr. Z: Hero to Zero? Zetsche's About-Face Feels Like Betrayal in Detroit."

General Motors and DaimlerChrysler had already met three times before the February 14 supervisory board event (dubbed the "St. Valentine's Day Ma.s.sacre" by one Michigan politician). Zetsche had turned over the GM talks to Rudiger Grube, DaimlerChrysler's dapper, fast-talking chief of corporate strategy. There was a weird symmetry to that. Grube had been one of Jurgen Schrempp's key operatives during the merger negotiations with Chrysler in 1998. Meanwhile, Fritz Henderson, Grube's counterpart on the GM side, approached his task with the same determination he brought to the Renault-Nissan discussions. But in this case, he didn't have a strong opinion about a GM-Chrysler deal.

The biggest proponent at GM for a Chrysler deal was Bob Lutz. He knew Chrysler better than anyone at GM, having been president and vice chairman before being pushed out during the Daimler merger. Lutz had fond feelings for Chrysler, mostly because he was responsible for some of its best-known products: the sleek LH sedans and funky PT Cruiser, the muscular Ram pickup and go-anywhere Jeep Grand Cherokee, and most of all, the 400-horsepower, superfast Dodge Viper sports car.

Lutz believed that bigger was better for GM and that the market could no longer support three independent Detroit carmakers. "The consolidation of the U.S. industry is absolutely mandatory," he said. "Somebody has got to die." He argued that buying Chrysler would allow GM to spread its fixed costs over a larger volume of products and dominate certain segments. "Chrysler as a corporation would go away," he said. "You would consolidate everything. You could keep the brands and get rid of everything else and fold it into the global GM organization-finance, legal, government relations, manufacturing."

Lutz had told Wagoner, Henderson, and the GM board that this type of opportunity wouldn't come along often and should be seized. "Obviously it's got to be ultra-affordable," he said. "But I think Daimler would do anything to get rid of it." Lutz could be very persuasive. And he drooled at the idea of putting GM's Hummer brand side by side with Jeep to form a killer SUV lineup, or adding Ram's market share to the Chevy Silverado and GMC Sierra. Besides, he was sure GM could get Chrysler dirt cheap.

But Wagoner and the GM board members weren't so convinced. Zetsche wanted to sell Chrysler to get rid of the billions in pensions and health care benefits owed to union workers. GM already had that problem. The more the directors debated it, the less they liked the idea of taking on more UAW baggage. "So you want to combine two businesses that have unsolvable problems with unions and legacy costs?" asked John Bryan, the GM director. The only way the board would consider buying Chrysler was if the union agreed to health care cuts and plant closings beforehand. In other words, Zetsche had to convince Ron Gettelfinger to make major concessions at Chrysler to allow GM to swallow it up.

Henderson took the outlines of an offer to Grube. Instead of any cash changing hands, General Motors proposed giving a 10 percent stake in its stock to DaimlerChrysler in exchange for Chrysler. Then the two companies would collaborate to fund Chrysler's legacy costs, with the German side kicking in at least $1 billion. But the main condition was the most controversial: the UAW had to agree to a health care deal and other concessions, and give its blessing to the entire transaction before it could occur.

Zetsche rejected those terms immediately. "We have to first negotiate a deal with the union to change the contract before changing ownership?" he said. "No way-then the union is totally in the driver's seat and can blackmail us. I'm not going to do that. We could be in a position to do that afterward, but not before."

When GM basically said take it or leave it, Zetsche decided it was time to move on. "It's a no-go for me," he said. "I prefer to decide my own destiny and not give it to the hands of the union."

GM's low-ball offer crystallized Zetsche's dilemma. On the surface, Chrysler was a powerful industrial machine that built and sold more than 2.6 million vehicles a year. It had a storied history, established brands, a good workforce, and excellent facilities. But 90 percent of its sales were in the intensely compet.i.tive North American market. A new owner could theoretically revamp its truck-heavy product lineup and expand into international markets. But the big burden was the legacy costs, an estimated $19 billion in long-term health care obligations to union workers and retirees. Chrysler was like a fine-looking house with a monster mortgage. Another auto company could not justify adding Chrysler's a.s.sets if it came with the crushing costs of its union workforce. Soon after GM's bid was turned down, Renault-Nissan said it wasn't interested in acquiring Chrysler or bringing it into their alliance. Hyundai didn't want it either. And there was no Chinese player on the horizon.

The potential buyer would have to be a very prosperous corporation-industrial or financial-that had a burning ambition to manufacture automobiles. Despite the risks, it was still a glamorous business with a huge potential for profits in a strong market. Zetsche realized that the most promising arena to pitch Chrysler in was the private equity sector. On February 22, DaimlerChrysler authorized its investment banker to release confidential financial data about Chrysler to four large private equity buyout firms: Cerberus Capital Management, the Blackstone Group, Apollo Management, and the Carlyle Group. GM was also on the list, just in case it was willing to improve on its first offer. But it wasn't long before the choices narrowed to the two most interested parties-Blackstone and Cerberus.

The Blackstone Group was one of the largest and richest investment funds on Wall Street. Led by its high-flying chairman, Stephen Schwarzman, the company had ama.s.sed a war chest of $125 billion. Firms such as Blackstone raised money from big private investors, acquired distressed businesses on the cheap, and then stripped them down and rebuilt operations under new, handpicked management. The trick was to fix acquisitions quickly, run them hard, and then sell out or do a public stock offering within five to ten years, generating big returns for the investors and extraordinary fees for the buyout firms.

Schwarzman was the envy of the private equity world-a high-society billionaire who lived in a $37 million Manhattan apartment and had recently graced the cover of Fortune magazine as "the new king of Wall Street." He was eager to do a deal and very solicitous of Zetsche at a meeting in Germany. "We want to make the deal work," he told Zetsche. "We'll fit it for you like a tailored suit." Blackstone had a glittering record of success buying hotel chains, food companies, real estate developers, and auto suppliers. And despite his flamboyant lifestyle-he rented out the Seventh Regiment Armory on Park Avenue for his sixtieth birthday and hired Rod Stewart to perform-Schwarzman and his partners excelled at fixing nuts-and-bolts industrial companies. Blackstone already owned a majority stake in the TRW automotive unit, a huge maker of air bags and seat belts, and backed the spin-off of GM's former American Axle division.

It also brought a savvy partner to the Chrysler bidding: Steve Girsky, the ex-a.n.a.lyst who had made such an impression during his stint as an advisor at GM. Girsky's firm, Centerbridge Partners, was hungry for automotive opportunities and could be a big a.s.set because of Girsky's relationship with the UAW. Girsky believed that Zetsche was more interested in finding a stable home for Chrysler than in getting a good price. "The best sale is not how much money Daimler gets but what lowers its risks and improves the odds of success," Girsky said.

Blackstone had the reputation, experience, skill, and financial resources to buy Chrysler. But Cerberus had an edge-and it was named Stephen Feinberg. Cerberus was the anti-Blackstone: secretive rather than celebrated, bare-bones offices instead of fancy furnishings and museum-quality art, an underdog att.i.tude versus Wall Street royalty.

Its very name conjured up a ferocious image: Cerberus was the three-headed hound that guarded the gates of the underworld in Greek mythology. And the man behind the mean dog was Feinberg, the Bronx-born, forty-seven-year-old son of a steel salesman, who never gave an interview or agreed to be photographed, much less featured on magazine covers. With his short, reddish hair and wispy mustache, Feinberg didn't look like a multimillionaire mogul. He didn't act like one either. A Princeton graduate and star tennis player, he was also a former U.S. Army reservist who loved to hunt, wore cowboy boots with his dark suits, and drove a Ford pickup. In fifteen years, he had taken a $10 million investment and built a private equity powerhouse that owned dozens of companies with combined annual sales of $60 billion. No deal was bigger for Cerberus than its acquisition of a 51 percent stake in GMAC. Fritz Henderson had led the negotiations for GM and marveled at the energy the Cerberus execs brought to the table. "They were like random atoms bouncing off the walls," he said. "They are really tough to deal with, but when they give you their word, they're good for it."

Feinberg wanted Chrysler badly, and Zetsche knew it. "I got the feeling early on that Feinberg was very emotional about the deal," he said. "This patriotic element of buying an American icon and saving it was a strong motivation for him." As professional as Blackstone's people were, the Cerberus officials seemed to operate in a higher gear, plying Grube with hundreds of questions and requests for data.

Feinberg also sensed quickly the pressure that Zetsche was under to make a deal. He figured the German's job was in jeopardy if he couldn't cut Chrysler loose quickly. "He was in a sell mode," Feinberg said. "He wanted to sell the company and sell it fast. And we were willing to do it in an expedited time frame."

From the moment he began studying it, Feinberg was confident Cerberus could make Chrysler work. "We can run this better than them," he said. "And what could be a better opportunity than an orphan in an industry that's at the bottom?" He thought the Germans had mismanaged the company by loading it down with bureaucracy and too much production for its natural market share. He saw a plethora of opportunities to cut costs and do joint ventures with other automakers for engines, small cars, and overseas distribution. And he relished the chance to connect with the blue-collar guys at the UAW and show them that not everyone in private equity was a rich sn.o.b driving around in a Mercedes-Benz.

Grube and the investment bankers set up camp in New York, meeting with Blackstone one day and Cerberus the next. A third, unexpected bidder, a big auto parts maker named Magna International, had elbowed its way into the process. But Magna was only in the mix if Daimler needed an alternative to the private equity players.

In early March, the bidders traveled to Detroit for their first inside look at Chrysler. LaSorda told his top executives to approach the meetings "as the most important job interview you've ever had." Secrecy was paramount. While the bidding teams were in Detroit, they traveled in Ford-made Lincoln Town Cars rather than Chryslers. At the Chrysler Tech Center, their movements were ch.o.r.eographed to avoid any contact with rank-and-file employees. On the morning of March 5, Cerberus senior executive Lenard Tessler and his aides arrived at the Walter P. Chrysler Museum on the tech center campus. From there, they were shuttled to the cavernous "design dome" to meet LaSorda and his execs.

The dome had been transformed into a showroom: trophies and product awards were on display along with several future models, including the top-secret, next-generation Ram pickup. For several hours, LaSorda and his team outlined Chrysler's product plans, finances, labor costs, and compet.i.tive pressures. At 5:30 P.M. everyone headed back to the museum for a white-tablecloth dinner of filet mignon and lobster. Chrysler repeated the show a few days later for Blackstone and Centerbridge officials, and then again for Magna.

Several of the visitors were familiar to the Chrysler executives. Cerberus had hired Robert Rewey, the retired head of sales at Ford, as an advisor. Magna's contingent included Mark Hogan, a former GM executive and colleague of LaSorda's. And of course everyone knew Steve Girsky.

But the most valuable player was still hidden in the background-Wolfgang Bernhard, Chrysler's former chief operating officer and Zetsche's right-hand man during its revival. Cerberus hired Bernhard as a potential chairman of Chrysler, but he would also be a valuable a.s.set during the due diligence process. "Let's get this guy on our team," Feinberg said. "He used to run Chrysler. He knows where the bodies are buried."

In late March, each of the three suitors made opening offers, with Cerberus definitely the leader. Its biggest hurdle was the UAW. Gettelfinger still hoped that a sale could be avoided. And he went public with concerns about private equity ownership, criticizing the buyout firms as "strip-and-flip" operations that might carve up Chrysler and sell it off in pieces. The sale process, however, was gaining momentum by the day.

A pivotal moment came on April 4, when hundreds of Daimler-Chrysler shareholders gathered in Stuttgart for the company's annual meeting. Zetsche told the investors what they wanted to hear: a Chrysler deal was happening. "Everything is going according to plan," he said. Some of the shareholders weren't satisfied. "You've been sitting on this sc.r.a.p heap called Chrysler for nine years!" said one named Ekkehard Wenger. "You are now a.n.a.lyzing all the options?"

People could complain all they wanted, but Zetsche was not about to alter his carefully plotted course. Then suddenly he drew the ultimate wild card: Kirk Kerkorian. On the day after the annual meeting, Kerkorian-with Jerry York a.s.sisting-announced an unsolicited $4.5 billion cash offer for Chrysler. It was almost twelve years to the day since Kerkorian had launched a surprise takeover attempt of the company in the middle of the 1995 New York auto show. That scheme had failed, and this one was destined to as well.

York had been trying to get Kerkorian into the Chrysler talks for weeks, but he had been rebuffed repeatedly by the investment bankers. The German executives in Stuttgart wanted nothing to do with Kerkorian, primarily because he had sued DaimlerChrysler (unsuccessfully) over the price he and other Chrysler shareholders received for their stock in the original merger. But Kerkorian was determined to be heard. "If they won't work with us, we'll go public," he told York. Unfortunately, it was too late, and Kerkorian was frozen out. This was a closed auction, and Cerberus was in the lead.

By early May, Feinberg had a hundred people working on the deal day and night. Speed was now Zetsche's top priority, and Cerberus was ready to make it happen. The transaction finally fell into place during marathon negotiations in New York: Cerberus would acquire 80.1 percent ownership in Chrysler for $7.4 billion; Daimler would retain a 19.9 percent interest after kicking in $650 million and would walk away from Chrysler's health care and pension liabilities forever. Tom LaSorda would stay on as Chrysler chief executive, with Wolfgang Bernhard playing an active role as a special advisor to management.