Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry

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DEAD MAN'S CURVE

FOUR MONTHS EARLIER, on the day before Thanksgiving, I was about to leave my office to take one of my sons to a matinee of Speed-the-Plow on Broadway when the phone rang. It was Larry Summers, who'd just been named chief economic adviser to Barack Obama, the President-elect. "I'm calling with a hypothetical question," Larry said. "If you were asked to take on a six- to twelve-month assignment for the administration, would that be something that could work for you?" I replied that such an arrangement would be complicated, but all the same, it was something I'd be happy to consider.

For most of my career, I had majored in Wall Street and minored in Washington. I'd built a career in investment banking and private equity, limiting my involvement in politics to fundraising, serving on a few think-tank boards, and writing the occasional op-ed. While I'd flirted with government service in the past, the beginning of this new administration seemed like a compelling moment to step up. Our country was facing the greatest financial and economic crisis since the Great Depression; when would the skills of a finance guy like me possibly be more useful? If I hung back this time, what would I be saving myself for?

I hadn't worked in D.C. since the days of Jimmy Carter, and then not as a government official but as a reporter for the New York Times. I'd fallen into the job in 1974, starting as a news clerk for the Times's legendary columnist James "Scotty" Reston. Arriving in the capital two months before Richard Nixon's resignation was a dizzying experience for a twenty-one-year-old college graduate. A few years later I was a full-fledged Washington correspondent, responsible for covering what in the face of OPEC and stagflation were the two most important domestic issues facing the Carter administration: energy and the economy.

Then came the election of Ronald Reagan. Some of the stories I wrote were deeply skeptical of supply-side economics, to the point where I found myself attacked on the Wall Street Journal editorial page. My superiors decided that this would be an excellent moment for me to move to London to cover European economics.

Neither London nor journalism outside Washington was particularly satisfying, however. I grew restless. Although I had leaped at the opportunity to work with Scotty Reston, I had never set out to be a journalist. I'd been raised in the New York suburbs in a nonpolitical, business-oriented family. My father, who had seen his family's fur business

go bankrupt during the Depression and now ran our family's paint-manufacturing company in Queens, had urged me toward a professional education. I'd even applied and been accepted to business school and law school, both of which I'd deferred to stay at the Times. Now I felt the journalistic frustration of peering through the glass instead of running something or building something in the real world.

I could have tried returning to Washington as a public servant. But the private sector was a more realistic option in those days of Republican ascendance. Several friends I'd known in Washington had shifted to investment banking. That industry had nowhere near the glitz or notoriety it would gain within a few years, but listening to those who had entered the fray, it sounded like an exciting, challenging way to marry some of the variety and competitiveness of journalism with a chance to do more than report.

Money wasn't my main motivation — I was single and earning more than $60,000 a year, with both a cost-of-living allowance and a generous expense account — and it took me a while to realize how weird I sounded saying that on Wall Street. When asked in job interviews why I wanted to become an investment banker, I would speak somewhat airily about doing something different from journalism. My prospective employers would look at me quizzically. The more forthcoming ones told me that this was too tough a profession to take on unless I had a real drive to get rich. So I learned to play up a passion for moneymaking and to mention the limitations of living on only a five-figure income.

"I understand completely," said one of my last interviewers. "I don't know how anyone can live on sixty thousand dollars a year." At that time, someone making that much ranked in the top 10 percent of all earners.

In my early years on Wall Street, I had no time for politics or policy. I devoted my waking hours to work and tried to be a good family man. The best thing that had come out of my time in London was meeting my wife, Maureen White, another American expat. When we decided we wanted children, we somehow managed to have four in four years' time (one set of twins).

Not until the mid-1990s, after I'd risen to a senior post at the investment bank Lazard Frères, was I able to focus again on Washington. I began to write op-eds. I became involved with several think tanks and started donating to candidates I liked.

Maureen and I had met the Clintons on Martha's Vineyard in the early years of Bill Clinton's presidency. Our relationship was cemented in 1995 when Vernon and Ann Jordan arranged for us to stay over in the Lincoln Bedroom, on the second floor of the White House. We were so naive about fundraising that we took the Jordans at their word when they said that the Clintons wanted to "meet a few new interesting people."

That year, we dove into Clinton's reelection effort — raising money, courting business support, and attending events. After the election, Maureen became the U.S. representative to UNICEF. I had conversations with Treasury Secretary Bob Rubin and his then-deputy Larry Summers, but their needs and my availability never coincided.

Maureen and I worked hard for our friend Al Gore in 2000, and then again for John Kerry in 2004, because we could not bear George W. Bush's policies. At the time, I wasn't thinking of a Washington job; I had made a commitment to the three partners with whom I started a private investment firm, the Quadrangle Group, in 2000, promising that I would not leave for at least five years. And I was enjoying helping our little firm grow and thrive.

When Hillary Clinton ran for President in 2008, the decision to support her was easy. I admired her enormously and thought that she was the best qualified to be President. But as the campaign unfolded, it became clear that on substantive policy grounds, she and Obama were almost indistinguishable. So while I was proud to be a Clinton supporter, I always felt that Obama would also be fine. In August 2007, I ran into him at a Martha's Vineyard golf club and mentioned that if he became the nominee, I'd be pleased to help in any way I could. (At that moment, I suspect neither of us thought that outcome was likely.)

We stayed with Hillary to the bitter end; I've always believed that the girl you bring to the dance is the girl you stay with. But when she dropped out in early June 2008, Maureen and I were happy to support Barack. As always, we tried to keep a low profile and help where we could, mainly in fundraising, business outreach, and cultivating other potential supporters, particularly those who had been for Hillary.

Election night 2008 was a celebratory moment for us. Of course, almost immediately the jockeying and speculating over appointments began. I wanted to serve and felt that now the timing was right: my kids were nearly grown, and Quadrangle was coming up on its ninth anniversary and I had capable partners. But I knew from observing previous transitions that Obama would pick his most senior advisers first. Any potential role for me would be a notch down.

I had not concealed my interest in Washington, so I didn't think I needed to do much to advance myself. I'd seen would-be officeholders put themselves forward shamelessly — and futilely. Any job I would want would be decided on merit, another reason for not trying too hard. My prospects were helped by my relationships with people involved in the transition, including its overall head, John Podesta, a former chief of staff to President Clinton. In charge of the personnel process was Mike Froman, a former Treasury chief of staff, a law school classmate of Obama's, and a good friend of mine. My partner from Quadrangle Josh Steiner, himself a former Treasury chief of staff who had been caught up in the Whitewater scandal, had been asked to help with the economic-policy portion of transition planning. One of the few people I talked to openly during this period, Josh urged me not to be passive. "Very few people get drafted for these jobs," he said. So I visited briefly with Podesta and Froman to register my interest in serving in the new administration.

On the Monday before Thanksgiving, Obama announced the key members of his economic team. Timothy Geithner's appointment as Treasury secretary made him my most likely new boss, so I sent him a congratulatory e-mail noting my willingness to serve. The cryptic phone call from Larry Summers as I was leaving to see Speed-the-Plow came the next day. After that, I sat back to wait. While Josh was discreet, I knew he would alert me if there was some action he thought I should take.

Tim was still president of the New York Federal Reserve Bank — a more-than-full-time job as the financial crisis accelerated. I could not imagine how he could manage it and prepare to run the Treasury at the same time. So I was excited to get an e-mail from his assistant, asking me to meet with him on December 18 at 8:30 A.M.

Having allowed plenty of time in case of rush-hour delays, I arrived early at the gray, fortresslike Federal Reserve building on Liberty Street in downtown Manhattan. Ushered into a small sitting room, I waited until Tim, in his customary blue suit and white shirt, rushed in, dropped his BlackBerry and phone on a side table, and began my first job interview in years.

Speaking in his usual concise, focused fashion, Tim explained that Treasury's traditional organization was unsuited to the current economic problems: there were more crises than there were formal jobs. And yet, he explained, it was hard to create new senior positions without congressional approval. So Tim was thinking in terms of tasks rather than positions, implying that he'd get to the specifics of positions and titles later. He mentioned four issues that might be appropriate for me to work on: housing, the immediate banking problems, longer-term financial policy, and autos.

I said that I was open to discussing any of the possibilities and didn't want to make his impossible life more difficult by being finicky. Less than fifteen minutes into our scheduled forty-five-minute meeting, an assistant came to summon him to another meeting, and Tim stood to leave.

"Do you have any questions for me?" I asked, disconcerted by this abrupt turn in my job interview.

"No," he replied and was gone.

Later, it struck me that the jobs Geithner had listed were like a four-point checklist of the financial and economic calamities facing the new President. With the collapse of the subprime mortgage market and the unprecedented fall in property values, homeownership had gone from the American dream to a debt nightmare for millions of families. The nation's biggest banks and investment houses were mostly crippled, threatening to paralyze the entire economy. Financial policy had clearly failed to guard against this, and once the emergencies were resolved, the question would be how to fix the system. And the auto industry, the once proud symbol of America's industrial might and still the employer of millions, was near ruin. If any one of these missions became mine, I thought ruefully, I certainly would not have to worry about being stuck in some purely honorary job.

Like most Wall Street denizens, I had watched closely as these crises cascaded through the financial markets and undermined the broader economy. Our private equity investments were mainly in media and communications, sectors somewhat removed from the financial industry collapse. Nor did we engage in derivatives or subprime or risky lending in our other principal business: serving as the investment arm for Mayor Michael Bloomberg's personal and philanthropic wealth. So we did not feel the same sense of imminent peril that many of my friends experienced. At first the crisis was simply unnerving — also fascinating in a morbid sort of way.

I followed the daily developments closely. As a private equity investor and mergers and acquisitions veteran, I was only vaguely familiar with the new lingo of Wall Street — special investment vehicles, collateralized loan obligations, super senior tranches, conduits and securitizations. Now I did my best to learn, often entreating friends who were closer to the action to explain to me the new alphabet soup of CLOs, SIVs, MBSs, and so on. Writing helped me collect and focus my thoughts. In 2007, I warned in the Wall Street Journal of a "coming credit meltdown." As the crisis developed, I contributed op-eds on housing, on the likely emergence of better-capitalized banks, on what to do with Fannie Mae and Freddie Mac, on the future of private equity, and on the state of the economy (about which I was way too optimistic).

For many months, Wall Street was in a muddle about what it wanted Washington to do. In March 2008, when the Fed saved Bear Stearns, many in the financial community were dismayed. "Moral hazard!" they cried. "Poorly run institutions must be allowed to fail!" For the next few months, markets continued to erode only gradually, with the acute pain confined to those in the subprime mortgage arena. But then came the crisis of September 2008. "The Street" wanted the government to let Lehman go — a notch in the moral-hazard belt — and the Federal Reserve and the Bush administration obliged. But from that horrible Monday morning when we awoke to Lehman's bankruptcy — the firm at which I enjoyed beginning my Wall Street career and at which I still had many friends — it was clear that things would never be the same.

I had experienced market crises, but nothing like this. The 1987 stock market crash — unnerving as it was on another Black Monday, October 19 — had proved short-lived. The Asian crisis in 1998 had been messier and protracted, but Asia was on the other side of the globe. This meltdown was right here in Manhattan, where we saw friends lose their jobs and much of their net worth. Financial markets began to seize up. Being a private equity guy was no longer a sheltered cove; we had portfolio companies that needed financing and none was available. Meanwhile, the recession that we now know officially began in December 2007 started to affect some of our companies' results, particularly those with substantial advertising revenues. We plunged into intensive reviews of each company, intent on cutting expenses and stretching liquidity as far as possible. The Bloomberg portfolio, conservatively invested, performed better than most of its peers, but the declines still stung. Above all, the sense that no one knew where the bottom was created more widespread terror than I had ever experienced in my Wall Street career. (As determined investors, we tried to find exciting opportunities amid the carnage, but it was hard to summon the courage to run into a burning building.)

I wasn't shocked — maybe I should have been — that Tim would have mentioned four very diverse jobs. For one thing, government has always placed more confidence in the transferability of skills than the private sector. Perhaps more importantly, all four issues had finance at their core, and all would benefit from a fresh look by people who were not wedded to past models and outmoded approaches. Even solving the auto crisis, I understood, would not be a management assignment like running a corporation; it would be a combination of restructuring exercise (cleaning up the mess) and private equity task (investing new capital). While the Wall Street community includes many who are more expert at both tasks than I, after twenty-six years in finance I felt that my "major" and my "minor" had converged.

Josh hinted a few days later that I was likely to be offered autos. My first reaction was to think, "But I live in New York!" — as a Manhattanite, I neither knew nor cared much about cars. (I'm a pilot, more interested in planes.) But Josh encouraged me, arguing that I could help prevent the devastation of this iconic industry. Among his many roles, he'd been named the transition team's senior auto adviser and had been scrambling to get up to speed on the ills of Detroit.

The same week as my job interview with Geithner, the Bush administration committed $17 billion of federal funds to General Motors and Chrysler, putting them on financial life support. The money came with a hodgepodge of conditions, including a mid-February deadline, when the automakers had to submit "viability plans," and another at the end of March, when the new Obama administration would revisit the whole issue. By then the automakers would again be almost out of cash.

Josh described this state of affairs as "challenging and interesting," perhaps in part because he was eager to hand it off. Another close friend, Senator Chuck Schumer, gave me a different take when we talked at dinner not long after I'd met with Tim. "Autos is a no-win," the senator bluntly declared. "The situation is probably unsalvageable. You'll run up against the unions and get eviscerated by your own party. Work on housing — it's a big, important issue, it affects everybody, it has to get resolved, and the politics are easier."

A week went by and the holidays came. On December 26, I took my family to Spain for a week of sightseeing ("history trips," our kids called these annual expeditions). But Tim's office interrupted our vacation on the thirtieth, asking to schedule a call for the following day. When my cell phone rang on New Year's Eve, Tim offered me the auto assignment, reporting to both him and Larry. I was very positively inclined, I said, but needed to discuss it with Maureen and a few others. Other than his telling me I would be a counselor to the Treasury secretary, there was no talk of terms or responsibilities, and the call ended in less than five minutes.

A few hours later, as we were about to go to dinner, the phone rang again; this time it was Larry, calling from vacation in Jamaica. "I know you talked to Tim," he began. "It would be great if you did this." He was surprised to discover I was in Barcelona and said, "It's a good thing I didn't call much later." Never one to stay up late, even on New Year's Eve, I replied, "My phone would have been off." I gave him the same response I had given Tim and went to join my family.

I lay awake for a while that night as 2009 began, sensing I was on the verge of the experience of a lifetime. I was being given a chance to play a central role in the largest industrial restructuring in history from within the most powerful institution in the world — the United States government. I would come to the job thinking I knew a lot about business and a reasonable amount about Washington. I didn't realize that my eyes would be opened to harsh new perspectives on both worlds. I would learn of both the devastation across our manufacturing sector — in part, collateral damage from our sound commitment to free trade and NAFTA — and the intimidating challenge of reversing the trend or even just halting the decline. I would discover that the struggles of GM and Chrysler were as much a failure of management as a consequence of globalization, oil prices, and organized labor. I certainly understood the importance of management to the small companies in which my firm invested; what would astound me was how important one or two individuals could be to the fortunes of businesses that were among the largest on the planet. And I would witness the dysfunction of Congress, its inability to rise above deep partisan divides and narrow parochial interests and produce legislative action to address in a thoughtful manner the many challenges that we face. I would conclude that if sunshine is indeed the best disinfectant, as Justice Brandeis once said, we need to find the most powerful lenses available to focus the sun's rays on the U.S. Congress and, particularly, the Senate.

In the end, the auto rescue would prove to be not just the story of two iconic automakers. It would exemplify many of the challenges that confront Americans in the twenty-first century — from our struggling manufacturing base to our declining middle class — and illustrate how difficult it is in the hothouse of Washington, so deeply divided along partisan lines, to take the desperately needed swift actions. I believe firmly in President Obama's efforts to restore our economy, yet because of such obstacles, the auto rescue remains one of the few actions taken by the administration that, at least in my opinion, can be pronounced an unambiguous success. Detroit should count itself lucky.

It had taken America's automakers my entire lifetime to come to the crisis they were in. I grew up during Detroit's heyday, the fifties and sixties, when the Big Three were just that. General Motors, Ford, and Chrysler controlled 90 percent of the U.S. car market, by far the world's largest. GM sold half the vehicles purchased annually in America, coming in year after year in the number one spot on the Fortune 500 list of America's largest industrial companies. Driveways and garages up and down the street in my parents' affluent Long Island suburb were filled with Ford Country Squires, Lincolns, Cadillacs, and the like.

In those upbeat days, Detroit's offerings echoed the optimism of the space age, drowning in chrome and sporting glamorous-sounding names like Galaxie, Starliner, Thunderbird, and Barracuda. My best friend in high school got a Camaro convertible as a graduation present from his parents, and we all thought it was about the coolest thing around. It was perhaps a precursor of things to come when in 1966 my mother abandoned our family's preference for Fords and bought herself a small Mercedes, and our family became among the first I knew to own a foreign car.

I was a college junior when gasoline prices first soared to shocking levels, which ended Detroit's hegemony and opened the floodgates for small, inexpensive, fuel-efficient Japanese imports. Competition, high gas prices, and stagflation squeezed the U.S. carmakers hard in the 1970s, ending with Chrysler nearly bankrupt and Ford and GM deep in red ink. At the New York Times I helped cover Chrysler's pleas for a government bailout. In one story I described the debate as a "first-rank political and economic controversy over whether it is obligatory, or even desirable, for the Federal Government to come to the rescue of a large, ailing corporation." That question, it turned out, would trail me.

On highways and streets, imports — Corollas, Civics, Datsuns, and Volkswagens — became as popular as American cars. I'd shared the use of a Ford Pinto in college (one of the worst cars ever built), but when I got to pick my own car, I chose a sporty Datsun 260Z. Volvos competed with U.S. station wagons, and Mercedes and BMWs displaced Cadillacs and Lincolns at the luxury end. In 1982 came the first successful "transplant" — a Honda factory opened in Marysville, Ohio, where non-union American workers turned out Accords just as efficiently as workers in Japan. Such plants enabled Detroit's rivals to avoid import restrictions and lessened the effects of currency swings, increasing the pressure on the Big Three.

That is not to say Detroit didn't have successes. After its first bailout, Chrysler, fired up by Lee Iacocca as its CEO and TV pitchman, invented the minivan and changed the world of driving for suburban moms. Ford launched the Taurus, a radically curvaceous full-size car that critics first ridiculed as a "flying potato," then hailed as a design breakthrough. Consumers made it the best-selling car in America, displacing the Honda Accord. These late-eighties successes drove Ford and Chrysler to record-breaking profits and lit up their stocks. Ford's stock price rose 1,500 percent between 1981 and 1987.

But beneath it all was an undertow. U.S. automakers' market share was eroding as the Germans and Japanese developed a better bead on what buyers wanted. Confronted with lagging demand, Detroit was always a lap behind in cutting capacity, raising productivity, and renegotiating with labor. The financial pages chronicled the Big Three's woes: a steady stream of reports about plant closures, layoffs, concessions to unions, and struggles with regulators and consumer watchdog groups.

GM, in particular, seemed incapable of effective change. Starting in the 1980s, top management gambled at least $90 billion on computers and factory robots and a sweeping remake of GM's 800,000-employee organization — all in hopes of leapfrogging the competition into the twenty-first century. Instead, the reorganization stalled and a newly engineered generation of Buick Regals and Oldsmobile Cutlasses fizzled in the marketplace.

In 1989, the once mighty GM became the butt of national ridicule when Roger & Me, the most successful documentary ever at the time of its release, skewered the company for exporting jobs to Mexico and impoverishing Flint, Michigan, one of the many seemingly doomed all-American factory towns. Detroit's ingrown management culture looked more arrogant than ever onscreen. How timely the film was: after the recession of 1990-1991 forced more layoffs and plant closures, GM earned the grim distinction of recording the largest one-year loss in American corporate history, $23.5 billion in 1992.

Less prosperity brought more challenges as the Big Three felt the effects of years of concessions to the UAW, including comprehensive health care for an ever-expanding number of retirees and their families. (The UAW was so central that when crunch time finally came in 2008 and Congress called the Big Three to testify about bailout needs, there were four chief executives at the table: the CEOs of GM, Ford, and Chrysler, and Ron Gettelfinger, head of the UAW.) It is not an exaggeration to say that the industry could have crumbled before the twenty-first century began had not a revolutionary development — the sport-utility vehicle — hit the streets. Consumers were in love again, not with American cars exactly, but rather with American light-trucks-turned-passenger-vehicles. SUVs enabled automakers to exploit cheap gasoline (the price of which, adjusted for inflation, had fallen to near pre-OPEC levels) and skirt clean-air regulations. Clinton's economic boom was on, and these high-riding, road-hogging, gas-guzzling monsters were the hallmark of the era. As foreign automakers initially dismissed the SUV as a craze, Detroit's profits and stocks went up once more. Detroit was on such a roll that in 1999 the Wall Street Journal predicted a new golden age for GM, Ford, and their top competitors (Chrysler by then had been bought by Daimler). In 2000, GM stock hit its all-time high of $93.63 a share.

Yet the reality was that SUVs slowed, but did not reverse, the erosion of Detroit's market share. By 2005, it would be easy to see all the wrong turns, including the diversion of billions of dollars of capital to acquisitions (Ford bought Jaguar and Volvo; GM picked up Hummer and Saab). None of these deals paid off. To juice up sales, the companies became addicted to incentives — cash-back offers and heavy discounts that sustained production but sacrificed profits. (Incentives weren't as stupid as they seemed: labor contracts guaranteed wages whether workers made cars or not.)

Detroit's ultimate implosion, begun long before the 2008 housing market collapse and financial panic, was triggered by the resurgence of oil prices. In 2004, gasoline, edging up at the pump for a couple of years, jumped to more than $2 a gallon. Suddenly, filling the tank of a large SUV cost $60 or more. Dealers had little to offer as consumer demand swerved back toward small, fuel-efficient sedans. The Big Three had never controlled expenses, especially labor costs, enough to be able to make money on such cars. In 2006, Ford lost $12.6 billion on $160 billion in sales.

Each Detroit giant responded in its own way. Chrysler's owner, Daimler, decided to bail — in essence giving away an 80 percent stake in the business, for which it had paid $38 billion nine years before, to the private equity firm Cerberus. Ford, by contrast, strapped in, raising $23.5 billion by taking loans on its factories, real estate, patents, and even the rights to its distinctive blue-oval trademark. GM unloaded assets, including a majority stake in its huge finance company, GMAC.

By 2006 GM's domestic market share had fallen to less than half of its historic peak. Industry watchers began to speculate about whether Toyota might usurp GM as number one in the U.S., once unthinkable in a country where World War II vets had insisted on American-made cars. (Toyota was on the brink of displacing GM worldwide, which it did the following spring.) It was a classic business saga, not unlike those of companies in many other industries that saw a once dominant market share challenged by new competitors. For the U.S. steel giants, it was imports. For the three broadcast TV networks, it was cable. As for Detroit, years of mismanagement had allowed structural problems such as labor costs to become intractable.

These decades of decline had left Detroit frighteningly vulnerable to the mounting calamities of 2008. That summer, when gas prices topped $4 a gallon, car dealers suffered double-digit decreases in sales. As the decline in housing prices gathered speed and the intensifying recession dried up credit, consumers could no longer get car loans and dealers couldn't finance their inventories. Sales plunged and cash began draining from the automakers' treasuries at a dramatic rate.

Increasingly desperate, the companies went into panic mode. Chrysler explored mergers with Fiat and Renault-Nissan. Ford, after experiencing the worst quarterly loss in its 105-year history — $8.7 billion in the second quarter of 2009 — announced a radical shift in its product lines. GM's second-quarter loss was nearly double the size of Ford's — $15.5 billion. Amid other restructuring steps, the company said it would slash production capacity by 300,000 vehicles.

For the president of GM, Fritz Henderson, the months leading up to the company's one hundredth anniversary, in September 2008, were the hardest in his lifelong GM career. A stocky, energetic pragmatist, Henderson began worrying seriously about his company's survival as soon as sales began to ebb in the first quarter. In June, after successfully negotiating the end of an ugly, months-long UAW strike that had crippled production of SUVs, he saw an alarming statistic: GM had more days' supply of unsold trucks at the end of the strike than at the start. Consumers had stopped buying. "We should have let the strike run another sixty days," he grimly joked to the company's North American chief.

At first, the sales collapse was purely domestic — Europe was still strong, as were Asia and the emerging markets. But with oil at $140 a barrel, Henderson knew the malaise would spread and tried to prepare. Money in the capital markets was evaporating; it was becoming as hard for GM to finance operations as it was for consumers to get car loans. Henderson was soon elbow-deep in implementing what General Motors CEO Rick Wagoner and the board of directors called GM's self-help plan — taking production down, slashing jobs and orders with suppliers, cutting inventory and working capital. With Wagoner's acquiescence, he explored even more radical steps.

By late summer, teams of GMers sequestered in a hotel near Detroit were secretly analyzing a merger with Chrysler. The number three Detroit automaker had approached GM after its courtships with Fiat and Renault-Nissan failed. Henderson and his task force made a case to a skeptical Wagoner that by absorbing its smaller rival, GM might attract new investment and bolster its chances of survival, even if demand continued to fall.

The financial panic on Wall Street in September crushed that hope. At a very subdued hundredth anniversary gala two nights after Lehman Brothers went bankrupt, Henderson sat thinking how much he hated birthdays. He wondered if GM would even make it to 101.

The automakers by now had begun quietly asking Washington for help, focusing at first on diverting money from a $25 billion incentive program set up by Congress to speed production of electric cars and other "advanced technology" vehicles. Henderson was sure that GM had no alternative to federal aid. But it filled him with foreboding. In early October he shared his concerns with Wagoner in an e-mail. He believed the government would help — he couldn't envision George W. Bush letting the automakers fail in the last three months of his presidency. Yet if it accepted help, GM would jeopardize its autonomy, and its leaders risked losing their jobs. "Once you open this door, you don't know where it's going to go," Henderson told Wagoner. "You just need to understand that. Because when you ask for support from the taxpayer, things could change."