How Ed Whitacre brought GM back from the brink

January 23, 2013, 10:00 AM UTC

FORTUNE — General motors filed for Chapter 11 on June 1, 2009. Eight days later the White House announced that Ed Whitacre would serve as chairman. He had to learn the business fast; six months later he replaced GM lifer Fritz Henderson as CEO. Whitacre himself would be gone after a year, resigning as GM prepared an IPO. He was replaced by Dan Akerson. In American Turnaround: Reinventing AT&T and GM and the Way We Do Business in the USA, published in February by Business Plus, he tells of organizational chaos and a near-fatal lack of urgency. Excerpted below:

In mid-July 2009, I headed out. On the flight to Detroit I had some mixed emotions, I will admit. On the one hand, I felt excited to be going to GM (GM), and very much hoped I could be helpful. But it was also a little scary. I didn’t know a soul at the company, didn’t know cars, and hadn’t stepped foot in Detroit in years.

I touched down and was met by a GM driver. We immediately headed downtown to the Renaissance Center, a mixed retail and office space complex where GM’s world headquarters is located. The RenCen was the perfect metaphor for General Motors: overblown, overdone, complicated to the max. I made my way up to the 39th floor for my first meeting of the day with GM’s new CEO, Fritz Henderson.

Fritz was hunched over his desk working when I arrived. He welcomed me warmly and said he’d be most willing to help me find out anything I needed to know. Fritz was an encyclopedia of facts and figures. He also knew the global car business cold — he could quote numbers backward and forward, which was impressive.

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I had strong views as to what Fritz needed to do. To get GM back on track and employees reengaged, he was going to have to communicate a clear and compelling vision. How a business is organized is fundamental to me, so I asked for a copy of GM’s organizational chart. But Fritz didn’t have one. He said GM had done away with them. He was tracking everything in his head.

That was the first red flag.

Red flag No. 2: Fritz had 15 or 20 senior executives reporting to him directly. That’s a huge number. CEOs typically speak with their direct reports daily — it’s one of the main ways you stay plugged in to what’s going on in your business. I was mystified as to how Fritz found the time to talk with 15 or 20 people a day and still deal with all the other things that were on his plate.

I wanted to know about GM’s business structure, to get a firm understanding of the specific jobs and responsibilities of the senior management team, how the various divisions stacked up from a reporting and organizational standpoint. It was then that I got my first inkling why we were in trouble. Fritz could not explain, in a clear, concise fashion, what these people did.

Next up was Bob Lutz, GM’s vice chairman. He’d retired several times over the years, but he’d been brought back by former CEO Rick Wagoner as vice chairman to oversee the “creative elements” of products and customer relationships. What that meant, I had no idea. I got the sense that Bob’s main job was to weigh in with advice and opinions about anything he wanted, anytime he felt like it.

This arrangement, I soon discovered, extended to GM board meetings. This was a highly unusual arrangement, so I asked Fritz why he allowed it. He said Bob often had helpful comments to make. Plus, Fritz said, Bob might not take it so well if he was uninvited. I knew some changes were probably in order. As for Bob’s habit of sitting in on GM board meetings, that was about to stop.

A GM board meeting — my first since being named chairman — was coming up. I figured that would be as good a time as any to sit down with Fritz and talk about the direction of GM. I got right to the point: “Board members just want to know what’s going on, what our plans are — and that’s it,” I told him. “Remember, keep it short.”

Fritz did not exactly take my advice. Instead of keeping things to the point, his presentation turned into a long string of facts and figures that offered little insight into GM’s financial health or global strategy. At the one-hour mark, Fritz was still talking. I was incredulous. Instead of making it look like he had a handle on things, his presentation did just the opposite. After an hour and a half, we’d heard enough. I cut Fritz off and told him to sit down.

The room was dripping with tension. Half the board members were brand-new and didn’t know one another. Half were holdovers from pre-bankruptcy. A few were still smarting from Rick Wagoner’s fast exit. Everybody appreciated Fritz’s efforts, but some weren’t so happy he’d been named CEO. Some thought he should have left with Wagoner.

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GM’s board meeting finally wrapped up. Then we went into an executive session. My first observations, I told the group, were that GM was disorganized and management did not know what it was doing. It was basically “business as usual,” which was not acceptable. My conclusion: “I think we may have the wrong CEO.”

I headed up to Fritz’s office to deliver the news. He was waiting. “Fritz, the board has talked it over and the feeling is that we want you to have a fair try at this job. So we’re going to set a specific time period — 90 days — to see how you do,” I told him. “The board,” I added, “genuinely wants you to succeed. I want you to succeed.”

Fritz didn’t say much, except to point out that 90 days wasn’t a lot of time. It was a fair point. Fritz had a personal sense of urgency, no question. But the tempo of the senior management team had changed very little. Was Fritz the guy to lead GM? My gut told me no, based on what I’d seen up to then. But I also didn’t think it was fair to just bounce him out. He’d only been on the job a short time, and he’d been appointed under difficult circumstances. I figured Fritz would show his hand in the first few weeks. But anything less than 90 days would have signaled a complete lack of faith in him.

Ed Whitacre at his home in San Antonio

Some board members weren’t so crazy about the 90-day plan — they thought we should let him go right then. One of the critics on the board was Dan Akerson. Dan was pretty vocal during the executive session. He said he thought GM was one of the worst companies he’d come across in his entire life. And he was not a fan of GM cars — he made that crystal clear. Dan wasn’t alone in his hard assessment of GM’s product line. Other board members felt the same way.

After a week or so I had not heard from Fritz, so I called him to check in. I was trying to give him enough room to make his own calls as CEO, but I was also mindful of the upcoming October board meeting. “So how’s it going with the reorganization?” It was an open-ended question, but specific enough. Simplifying and streamlining GM’s operational structure was Fritz’s biggest challenge. This was also a top priority of the board.

“Things are going great!” Fritz said.

I let two beats go by, waiting for details to follow. They did not come. Instead, Fritz started talking about something else that had no bearing on the reorganization. I was respectful of Fritz’s role as CEO, but I also wasn’t going to stand by and do nothing while he dug himself deeper. So I decided to give him a few things to consider: “I want you to prepare a simplified presentation on revenue, expenses, and dealer shutdowns. Also talk about your plan for streamlining and reorganizing the business. Keep it short and to the point. Don’t get bogged down in detail: If board members have any questions, they’ll let you know. And that’s it.”

Fritz didn’t do that. Instead he showed up with a long, detailed presentation that probably would have been interesting if you were a car guy, but had little relevance to the state of the overall business, or the reorganization. This was just making a bad situation worse, because half our board members were brand-new and not from the auto business; they were not familiar with a lot of the lingo Fritz was throwing around.

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After the meeting, we immediately went into executive session. The general consensus was that Fritz wasn’t showing himself to be the change agent the board had been hoping for. Board member Steve Girsky pretty much summed up the feeling in the room: “This is the same old GM.”

After the meeting ended, I again made a beeline to go see Fritz. Executive sessions are confidential, so I couldn’t give him verbatim feedback from board members. But I left no doubt as to how the board was feeling. “Fritz, you have to change the organizational structure. You’re the CEO, you make the decision. But you need a new management structure, and you need new people in some of these jobs. Your span of control right now is so great that you couldn’t possibly get all this stuff done. You’ve got to start delegating.”

Fritz didn’t have much to say, about anything. But I could tell from his body language that not only did he not agree with me — he wasn’t even sure what I was talking about. You don’t know how this place runs, Ed, and you don’t know the car business, either. You basically don’t get it.

The November board meeting came and went. Fritz’s presentation, once again, was long and not exactly to the point. By now, the practical reality of the board’s situation was starting to kick in. If Fritz didn’t make it, we needed to have a replacement ready to go. GM could not afford to be without a CEO for even one day. Nobody had any concrete names to offer, so we batted around some ideas on the phone — directors were in pretty regular contact during this period.

That’s when I was asked, for the first time, if I might be interested in becoming GM’s CEO. I had a fast answer: “No.” Taking on the role of CEO and assuming responsibility for day-to-day operations and management was a different proposition entirely. I was then visiting Detroit pretty regularly — a few times a month. But I was not living there full-time, and had no interest in doing that.

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Then came the December board meeting — Fritz was now at the end of his 90-day probation period. Once again, his presentation did not go well. It was obvious that there had been very little progress on the reorganization, very little progress on anything. After, the consensus in the room was that Fritz was not the change agent that GM needed. Everybody liked Fritz, respected his deep knowledge, and greatly appreciated his many years of service. But the decision was unanimous: Fritz had to go.

By then we’d already hired Spencer Stuart, the executive search firm, to come up with a list of potential candidates. It was a really great candidate list — it had a number of heavy hitters from Fortune 100 companies.

Trouble was, GM had no money to pay them. We were operating under TARP rules, severely limiting what we could offer. The most we could pay was $2 million, maybe. That’s a lot of money, no question. But it’s not even close to competitive in terms of what top CEOs earn nowadays.

This was not one of the board’s finest moments. In truth, we should have been better prepared for the worst-case outcome. The fact of the matter is, we weren’t: We had no internal candidates that made sense, no external candidates that we could afford, and no time for Spencer Stuart to conduct a proper global search.

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That’s about the time somebody asked me again if I’d consider stepping in as CEO. I don’t even remember who asked the question. But I do remember it registered with me, and I immediately threw it back out on the table for discussion: “Does anybody here want the job?

I looked around the room for any flicker of interest, any whatsoever. Dead silence. There were no volunteers. Dan Akerson, one of GM’s most consistent critics throughout this entire period, sat silent. So did every other director. Nobody made a move; all eyes were on me.

“Well, I know we don’t have anybody,” I said, still rolling the CEO question around in my head as I spoke. “So if nobody else wants the job … then I will do it. For some short period, I will do it.” A quick show of hands was all it took: I was now the new interim CEO.

All that was left to do was to tell Fritz. He was waiting for me in his office. I remember exactly where I sat: just to Fritz’s left, at the conference table in his corner office. Fritz sat with his back to the large window — I could see straight down the Detroit River over his shoulder. There was no good way to say this, so I just said it: “Fritz, we promised you 90 days. We’re now at 90 days, and the board thinks you should go. It’s just not going to work out.”

Fritz seemed surprised: “Really?”

“Yes, really, that’s what we think.”

Fritz said okay — calm as he could be — then asked when his last day was.

“Now,” I told him. “This is your last day.”

Whitacre’s own tenure as CEO would prove short. The reason: GM’s rush to an IPO.

To stage a successful IPO, we’d have to show GM was profitable and had a trajectory that looked pretty good. We’d also have to have enough information in hand to go on a road show and convince investors that we were for real. We’d have to make our stock attractive to the investing public, but in a way that didn’t overreach.

If I stayed on as CEO through the IPO but left afterward, GM could be accused of misleading people. Management is a big consideration for many investors, and the exit of a CEO is considered a “material” or significant event. GM could be sued if people felt like they got duped. That begged another question: How long would I need to stick around after the IPO, then, to avoid that legal exposure? Nobody knew for sure.

I did not debate it with people, or even ask for their personal opinions — this was my decision alone. I made it clear I would not reconsider, or extend my stay as CEO. The board was a little surprised, I think. But everybody could see that I was serious, so they accepted my decision, pretty much on the spot.

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I had somebody in mind to take my place as CEO: Mark Reuss, president of GM North America. Mark had zoomed up the executive chain in record time; he went from midlevel engineer to the No. 2 person in the company in the space of a year, more or less. The plus was that Mark was showing a lot of poise and management potential. The downside was that he hadn’t been in the job long enough to prove himself as a CEO.

The board and I immediately began to discuss our options. They were pretty limited. The first question concerned structure: Did we want to have a nonexecutive chairman, who’s not an employee of the company? That was the arrangement I’d had as chairman. That way, if we decided to go with Mark, or another candidate, that person could serve as CEO, with the understanding that he or she would get a little seasoning before assuming the chairman’s title. Views on the board were split. Some people thought a nonexecutive chairman wasn’t a bad idea. Other people really didn’t care. A few didn’t like the idea at all.

One thing everybody agreed on: Mark had a lot of potential. The only concern was his short time in the job. If we asked him to step into the CEO’s job, and it didn’t work out, that would be a disaster for Mark — and an even bigger disaster for GM. The company needed stability. The revolving door in the CEO’s suite had to stop. At this point Dan Akerson volunteered to do the job.

Dan wanted to be chairman and CEO from day one. He had no interest in being a nonexecutive chairman, or a split title. I could certainly understand, because that’s what I would have wanted if I’d been in his shoes. Dan was 61 at the time, so like me he wasn’t exactly a spring chicken. But he said he’d do the job for a limited period of time. And the board was okay with that because our back was basically against the wall. When Dan put his hand up, that took care of the problem. Not very elegant, I will admit. But that’s how it played out.

My departure was announced on Aug. 12, 2010. We put the news out concurrent with second-quarter results: GM had earned $1.3 billion, making it our best quarter in six years. It was our second consecutive quarter of growth, and the trend line going forward was overwhelmingly positive. A big driver of the comeback was GM North America — that was Mark’s group. We also let people know that our S-1 document would be filed shortly. Our message to the market, and to America: GM is back.

Copyright (c) 2013 by Edward E. Whitacre Jr. Written with Leslie Cauley. Reprinted by permission of Business Plus, an imprint of Grand Central Publishing. All rights reserved.

This story is from the February 4, 2013 issue of Fortune.