Why GM May Not Be Dead

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Lutz's product revival, meanwhile, is yielding some decent cars with interiors that don't feel like Cracker Jack toys. The Saturn Sky won't save the brand but provides much needed zing. Edmunds.com calls it "Maria Sharapova at a tennis match full of middle-aged and badly dressed men." Lutz vows that design will no longer take a backseat to sales and marketing. A forthcoming Cadillac will be a model dreamed up by a design team and pitched to senior execs instead of the other way around. A 2007 Saturn sedan, the Aura, with an exterior designed in Germany, has already won acclaim for stylish looks.

Of course, any number of developments could puncture Wagoner's tires: oil hitting $100 a barrel or a recession in which auto sales tumble. Moody's recently warned of further downgrades of GM's bond ratings, already below investment grade, after GM said it may have to renegotiate terms for $5.6 billion in credit. Should GM's unsecured debt fall below a CCC rating, the GMAC sale would be in jeopardy. "We have to get the GMAC deal closed," Wagoner says when asked what could derail a turnaround.

Skeptics also question GM's books. The Securities and Exchange Commission is investigating the way GM accounts for retirement benefits and transactions between GM and Delphi. GM took a charge of $800 million last year to pay for factory closures, but that may not reflect the final cost of workers' opting for the jobs bank instead of retiring; analyst Bruynesteyn figures GM will have to book another charge for that in 2007. GM's various cost-cutting moves should boost the bottom line, resulting in net income of $1.6 billion next year, Bruynesteyn estimates. Yet the healthier GM's finances appear, the more difficult it will be to persuade workers to accept big wage and benefits cuts in the next contract.

Lutz is right about the perception problem: GM needs Wall Street and the media to stop mentioning the B word. Analysts say GM has lost one percentage point of U.S. market share in the past year — about 170,000 vehicle sales — as buyers shun its models, fearing a meltdown. Company execs stress that GM has ample cash. But bankruptcy is a psychological event as much as a financial one; Delphi sought Chapter 11 protection not because it ran out of money but because it ran out of credibility, sparking a run on the bank. "Someday, someone will be brave enough to say these guys aren't gonna die, that this place is on the cusp of a major turnaround," says Lutz. Someday. Maybe.