What Went Wrong? Everything at Once.

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That won't be easy for a company whose U.S. market share has plunged from a peak of 52% in the early 1960s to just 35% today. GM last week reported a $753 million loss for the third quarter and is careering through its third straight year of deficits. GM's North American division, the heart of its business, lost an astonishing $7.1 billion last year -- $1,700 for every car, truck and van it sold in the U.S., Canada and Mexico. The red ink was stanched somewhat by GM's car business outside North America, whose $2.1 billion profit helped cut the overall yearly loss to $4.5 billion -- still the most dismal showing ever by an American company.

The automaking losses have put GM in the kind of financial position lately associated with dying airlines and retail chains. The company has been frantically seeking cash to meet its financial obligations. GM has sold stock and tapped credit markets to raise $5 billion in the past year alone, mostly to pay operating expenses. If the financial squeeze grows too tight, GM might even file for bankruptcy protection under Chapter 11 to force concessions in its wage, pension and benefit packages. "This is not the company it once was," says a GM director. "There is going to have to be special oversight by the board for the next three years. Our credibility is at stake in the credit markets."

As rumor and anxiety racked the company last week, GM resembled a nation in search of a leader. "People are waiting for someone to step up and announce they are in control," said a senior executive of a major supplier. The betting was that Smale and Smith would divvy up Stempel's job, with Smale becoming chairman and Smith assuming the post of chief executive officer. Smith has been virtually running the company since April, when the directors installed him as president and told him to speed up the pace of corporate restructuring.

Once he gets his new job, Smith is apt to launch the new round of layoffs immediately, since he will be under as much pressure as Stempel to let the ax fall. Board members picked up tough ideas about what needs to be done in talks last month with General Electric chairman Jack Welch, who earned the nickname "Neutron Jack" by slashing GE's work force in the 1980s. Welch reportedly huddled with Smale and several other directors during a two-day forum of CEOs in Hot Springs, Virginia.

Stempel's ouster is a landmark in the growing shift of power from U.S. managers to corporate directors, who had traditionally been viewed more as rubber-stampers than real decision makers. As recently as the mid-1980s, not even the bellicose presence of Ross Perot on GM's board could persuade the firm to shift gears or change direction. "I did everything I could to get General Motors to face its problems," Perot said in the presidential debates. "They just wouldn't do it." Rather than heed Perot's exhortations to cut executive perquisites and streamline the bureaucracy, GM spent $750 million to buy out his stock and shut him up.