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  Gutierrez broke in to ask about bankruptcy. "Companies in your situation tend to pursue some form of reorganization," he said. "Isn't that something that could make sense here?"

  No way, said Wagoner, shaking his head; bankruptcy would sink the business by scaring off customers. "You can't sell cars to people under those circumstances," he argued, holding firm when Gutierrez pushed a little more. Bankruptcy was not on the table.

  After that, the federal officials remained largely silent, in part because Paulson had made it clear that he wanted the meeting kept short. Bryan, who hadn't quite picked up the mood, jumped back in to emphasize, "This isn't really a bailout, it's a bridge loan and, as you can see, this company can pay it back." Wagoner called attention to an appendix in the handout showing the importance of auto manufacturing, particularly in Ohio, Michigan, and Indiana. Across the United States, carmakers and their suppliers accounted for millions of jobs, 775,000 pensioners, and two million health care participants. A GM collapse would damage millions of lives.

  Then Paulson spoke up, reminding the visitors that TARP was intended to stabilize the financial system, not bail out industrial companies. "You're not going to be able to use it," he said with certainty. "You will probably need to go to Congress." Finally he circled back to soften the message. "The White House cares greatly about this. Carlos is going to be working with you on the President's behalf."

  A brief silence following the visitors' departure was broken by Paulson, who declared, "This is complete bullshit!" From long experience as an investment banker, he knew a scare story when he heard one. Yet it was unclear whether this alarm was entirely false—GM was offering only the most superficial analysis, with no detailed support for its assertions.

  Studying the page about the Midwest, Ken Wilson, one of Paulson's advisers from Goldman Sachs, mused, "If these companies go down, you could have riots in the streets." And Paulson remembered the terrifying speed with which Lehman Brothers had collapsed weeks before, after the government refused to intervene. With that in mind, he took his undersecretary for domestic finance, Tony Ryan, aside. "I want this kept quiet and secret," he told Ryan, "but come up with a plan in case we find out at five o'clock some afternoon that General Motors is going to file the next day. The President needs the option to prevent a very messy bankruptcy. So find out what's the smallest amount of money we could give GM to get them to the next administration and what would we get for that. Would 19.9 percent of the equity be right, or what?"

  As a further precaution, Paulson also asked Joel Kaplan, a deputy chief of staff to President Bush whom Paulson viewed as one of the few sensible people in the White House, to alert the President to the work soon to commence on the secret backup plan.

  The Columbus Day meeting set the tone for two months of struggle and confusion. Within the week, Chrysler signaled that it, too, was desperate for cash. Ford, having prudently borrowed billions early in the downturn, was in better shape, although its CEO, Alan Mulally, began calling administration officials to try to ensure that the company wouldn't be put at a competitive disadvantage if its Detroit rivals got help.

  For Washington, Detroit's emergency was in some ways more vexing than the cataclysm on Wall Street. The Treasury and other federal entities were rich in expertise for dealing with a banking crisis. But thanks to a long-standing and appropriate aversion to industrial policy, the government had no comparable resources to bring to bear on imploding automobile giants. In fall 2008, this traditional distance from nitty-gritty business was compounded by the complete focus of the economic team on the financial crisis. So now, in response to Detroit's threatened collapse, the administration and Congress were going to have to start from scratch.

  On the ride back to the Commerce Department after the secret meeting with Paulson and Wagoner, Carlos Gutierrez was puzzled. If GM really was in danger, was there any way to keep it afloat without having to involve Congress and without TARP? Gutierrez was a seasoned businessman whose career, begun behind the wheel of a Kellogg's delivery truck, had led him to the top of the $10-billion-a-year cereal company. After several uneventful years as commerce secretary, he was open to a challenge. Back at the office, he shifted into CEO mode. "We need facts," he told his lieutenants.

  That afternoon, in Gutierrez's private conference room, Ray Young and a group of Treasury and Commerce staffers reviewed a chart of GM's cash position, from the PowerPoint presentation. It showed, week by week, steep decline until, right around Election Day, GM would hit $11 billion of cash on hand. "That's the minimum we need to operate," Young replied when asked about the significance of that figure. To Gutierrez, this in itself was a red flag. A well-managed business, even on GM's vast scale, should never need that much cash.

  After two frustrating hours, Young left. "He's the CFO of General Motors and he can't answer a single question," complained Phillip Swagel, a high-level economist, as the team regrouped. Others would also find the forty-six-year-old Young, who had been GM's chief financial officer for only seven months, less than impressive.

  During the next several weeks, the Commerce staff scrutinized two possible sources of emergency cash for GM: the Department of Energy's Advanced Technology Vehicles Manufacturing Loan Program and the abandoned plan to merge with Chrysler. GM did its best to cooperate, with Young and his staff scrambling day and night to satisfy requests for data. But Fritz Henderson, for one, despaired of getting help from the Bush administration the minute he heard that the Commerce Department was involved. "Commerce never actually accomplishes anything," he pointed out. "They're good people, but they don't do stuff ... Treasury gets things done, because that's what they do."

  Nor was Wagoner reassured. GM had come to Washington hoping for a quick response—it was, after all, General Motors. Instead it got a paper chase. As the collapse in demand for new vehicles spread around the world, Wagoner concluded that neither of the solutions under study would work. The Department of Energy had yet to publish its rules for tapping the $25 billion in advanced-vehicle incentives, but it was pretty plain that as the law was written, the money was meant for retooling plants and couldn't be used for a bailout. As for resurrecting the merger with Chrysler, Wagoner decided he had to put a stop to the idea. On the day before Halloween he told Gutierrez flatly that the merger was a nonstarter—it would not address the liquidity crisis and would only compound GM's problems. By now it was clear to Wagoner that Paulson had been right; if GM wanted help, it would have to go to Capitol Hill.

  Election Day 2008 came and went without General Motors running out of money. But the Commerce Department's studies confirmed that GM's emergency was real and getting worse: before the year was out, the coffers would almost certainly be empty. Wagoner wasted no time getting in touch with his counterparts at Ford and Chrysler to ensure they would be at the front of the line when Congress reconvened for a lame-duck session.

  The Democrats' victory parties had scarcely ended when, on November 6, the CEOs of the Big Three, along with Ron Gettelfinger, the UAW chief, paid a visit to House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, and other Democratic leaders. For ninety minutes, the visitors pleaded for loosened restrictions on the $25 billion of advanced-vehicle incentives so they could borrow the money to stay afloat. Not surprisingly, given Obama's support from midwestern union voters, the Democrats listened attentively, but Pelosi's subsequent effusive statement of support was carefully hedged.

  The next day, the automakers unveiled dire third-quarter earnings reports (GM having quietly dropped its plan to post results the day before the election). GM's in particular caused an uproar on Wall Street. It revealed that the company was now burning through a stunning $3 billion a month—roughly $4 million an hour—more than double the losses of the previous quarter. And for the first time, GM acknowledged publicly that its cash balance would approach "the minimum amount necessary to operate our business" by the end of 2008.

  Wagoner made a customary pilgrimage to CNBC, where auto correspondent Ph
il LeBeau didn't hold back. "The numbers are not pretty," he began. "How close is General Motors right now towards bankruptcy?"

  Wagoner ducked, but LeBeau kept asking, finally eliciting a direct response: "We have no plans whatsoever to consider anything other than continue to run the business," Wagoner said. "We don't think anything positive would come out of any sort of consideration of reorganizations. I've seen pundits write this stuff, but you can't sell cars to people under that circumstance."

  This wasn't spin. The GM chief executive was convinced that, while consumers might fly on bankrupt airlines, they would never buy cars from a bankrupt automaker because of the need for warranty coverage and concerns about resale value. Our task force would later learn that, on Wagoner's instructions, GM was making no contingency plans, no preparations whatsoever for a possible bankruptcy filing. Its investment bankers from Morgan Stanley and Evercore Partners had taken the unusual step of beginning to explore bankruptcy options on their own. But in October, when they'd advised GM's board to prepare, Wagoner had cut off the discussion, curtly thanking them for their time. He had similarly dismissed every other effort to convince him to prepare for a possible bankruptcy. This attitude would add materially to the cost of the eventual rescue.

  The auto industry was high on the agenda when Congress returned to work on November 18. At 3:02 P.M. on that overcast Tuesday, Senator Christopher Dodd gaveled to order a hearing of the Banking Committee on the automakers' bailout request. Perhaps underrating the import of the moment, Dodd's aides had passed on storied Senate venues like the ornate Caucus Room in the Russell Senate Office Building, where the Watergate hearings occurred. Instead the session took place in a remote hearing room in the Dirksen building, a drab 1958 relic. It was packed with photographers crowded in front of the dais, attendees in rows of chrome-and-plastic chairs, and banks of TV cameras. Dodd quipped, "If I had known the interest, I would have held this at RFK"—the former football home of Washington's beloved Redskins.

  The guests—CEOs Wagoner of GM, Mulally of Ford, and Robert Nardelli of Chrysler, as well as the UAW's Gettelfinger—testified in alphabetical order. Mulally and Nardelli bemoaned poor vehicle sales, and Wagoner summed up GM's problems as not of its making, as he had at Treasury: "Mr. Chairman, I do not agree with those who say we are not doing enough to position GM for success. What exposes us to failure now is not our product lineup, is not our business plan, is not our employees and their willingness to work hard. It is not our long-term strategy. What exposes us to failure now is the global financial crisis, which has severely restricted credit availability and reduced industry sales to the lowest per-capita level since World War II." As business skidded further in the weeks following the election, the automakers had dropped the pretext of requesting speeded-up advanced-technology incentives. Instead they asked Congress point-blank to open up TARP and direct the Treasury to provide $25 billion of emergency bridge loans.

  That week is remembered less for anything the CEOs said than for the furor that erupted after Brian Ross of ABC News reported that the three had flown to Washington in separate private jets. Wagoner had been advised by his Washington PR person, Greg Martin, to fly by commercial jet, but he had rejected the idea. "I have meetings," he told Ross after the hearing. "I have a tight schedule."

  Yet the hearings proved pivotal in other ways, providing a public display of the automakers' state of denial and revealing Washington's confusion about whether and how to help the industry. Most senators and representatives glossed over tough issues and tossed around terms like "prepack bankruptcy" without any real idea of what they meant.

  And the hearings created one of the unsung heroes of the auto bailout, Senator Bob Corker, a Republican from Tennessee. I came to Washington with a bias against Corker because he had beaten my favorite Senate candidate of the 2006 election, Congressman Harold Ford Jr., after a particularly ugly campaign. Small and wiry, with an intensity belied by his soft southern drawl, Corker had been a mayor and businessman before being elected to the Senate. In that arena of show-horses and workhorses, he was proving to be a workhorse.

  For Corker, the hearing was an eye-opener. Just returned from a trip to Russia and Ukraine, he was tired, had a headache, and hadn't spent more than a minute thinking about autos. But it wasn't lack of sleep that left him dumbfounded. The automakers were asking for $25 billion but hadn't even told the senators how they were going to divide it up. Nor had any of them submitted or prepared plans to show how, if the request was met, their companies could be made viable without further outlays.

  Corker, getting down to business with terse, biting questions, pressed the CEOs on how the money would be split. Wagoner replied that GM wanted "our proportionate share," in a tone that irritated Corker. He asked Gettelfinger to rank the three companies' "shape," best to worst: "Ford, Chrysler, and General Motors," the union chief acidly replied. Corker hammered the CEOs over the lack of analysis in their request, and Gettelfinger over an extreme provision of the UAW contract under which laid-off workers received 95 percent of their normal pay.

  For Corker, this was his chance to "own" a major issue, at least among Republicans. Returning to his office in the nether reaches of the Dirksen building, he gathered his staff and began to lay plans for a fact-finding mission to Wall Street. He would seek out the finest auto industry analysts and financiers and maybe, just maybe, come up with a rescue plan.

  With Thanksgiving fast approaching, Congress ended its session without taking action on autos. Instead, in a public letter, Pelosi and Reid offered the CEOs a do-over: the House and Senate would return for a rare second lame-duck session in December, devoted exclusively to autos. But that session would take place, the letter warned, only if each company presented "a credible restructuring plan." Interestingly, the letter did not directly address the most important issue: whether $25 billion, as staggering as that sum would have seemed just months before, would even be enough.

  The coda to the week happened not on Capitol Hill but on Saturday Night Live. The show opened with a parody of what the second set of hearings might be like. In the skit, the CEOs do not fly to Washington, they drive—and apologize to Congress for showing up late because their cars all broke down. "I was going to drive my 2009 Cadillac XLR-V, a model we at GM are very proud of," says the ersatz Rick Wagoner, "but every time I tried to start it, I just got a powerful electric shock, and the upholstery would catch on fire." The CEOs ask Congress not for $25 billion but for hundreds of billions, to be paid over in quarterly installments over five years. "As you can see, Mr. Chairman," says Wagoner, "this proposal is specific, it is detailed, and it is both short- and long-ranged." When the congressmen protest, he adds testily, "With all due respect, we are not talking about a gift or a subsidy. We are talking about a loan." The skit careens on until the CEOs end up boasting that they have entire factories devoted to building lemons, and acknowledge amiably that they probably will never pay the money back. As over-the-top as it was, the parody spoke to the unpopularity of using tax dollars to rescue the automakers: by early December, most polls showed public sentiment running against the idea.

  Hank Paulson kept tabs on the auto crisis, but in truth Detroit's headaches were pretty far down his list of major problems. The struggle to stabilize the financial system was gobbling auto-rescue-sized chunks of federal funding every week, and at the rate at which Treasury was bailing out banks, Paulson feared that TARP would run out of money. Congress had appropriated half of the $700 billion authorized in the law that established the program; of that $350 billion, the Treasury had already committed more than $200 billion and the rest was going fast. If one or two more financial giants failed—Bank of America, say, or the huge financial operation at General Electric—the Treasury might not have the resources necessary to stave off a systemic collapse. Paulson's worries intensified just before Thanksgiving, when Citigroup needed a second bailout—$20 billion on top of the $25 billion the Treasury had already kicked in.

  All of Washington r
ealized that the lame-duck Congress was unlikely to appropriate the second half of TARP. Bailing out Wall Street—unpopular back in October when TARP had first been passed—had become more politically toxic in the intervening six weeks. And of course President Bush, on his way out, had exhausted his political capital. Winning approval for the second half of TARP would certainly be easier in 2009, with a new President and a new, more heavily Democratic Congress.

  But Paulson didn't think the matter could wait. He set out to make the case to Obama for securing the second half of TARP. He called Rahm Emanuel, Obama's chief of staff, two days before Thanksgiving.

  "We need to take down the last part of the TARP and we can only do that with you and we need your help," Paulson said.

  "That's not good news," Emanuel replied in his blunt fashion. He directed Paulson to call Larry Summers, the incoming President's top economic adviser. Summers questioned Paulson about TARP, and then, to Paulson's surprise, pointedly brought up autos. "You are not going to let the autos fail, are you?" Summers asked. The Democrats were moving Detroit to center stage.

  Bush's White House staff, more focused than Paulson on the auto crisis, had expected this. In his first postelection press conference, Obama had emphasized his commitment to autos, which he called "the backbone of American manufacturing." He'd made the point again in his first private meeting with President Bush, pressing for help for the auto industry.

  Bush's team saw that to obtain the additional TARP funding that Paulson argued was essential, they would have to rely on Democratic votes. That support, they believed, would be contingent on two things: the active endorsement of the President-elect and relief for the auto companies. But they didn't want to help Detroit unless they could attach strings—they wanted the automakers to secure concessions from major stakeholders to ensure their long-term viability. Otherwise, Bush's advisers argued, the incoming Democrats would cave in to special interests—particularly the UAW—with $25 billion becoming $50 billion or more. Meanwhile, the auto companies would do no genuine restructuring and instead end up wards of the state. To address these worries, Joel Kaplan, a deputy chief of staff, floated an interesting idea. Kaplan was a young, articulate Harvard Law graduate who had worked in the Bush White House since 2001. Paulson much preferred dealing with Kaplan and his boss, Josh Bolten, than with others among the White House's hefty contingent of rigidly ideological conservatives.