Wagoner Is Ousted to Maintain GM's Lifeline

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"He's being tarred as the architect of a strategy that didn't succeed," says Edmunds.com President Jeremy Anwyl.

Wagoner's ouster is more than just public relations, however. One of President Obama's Auto Task Force advisors, former United Steelworkers negotiator Ron Bloom, often used to push companies to change management if the USW was agreeing to make big concessions, notes Leo Gerard, the union's president and a close friend of Bloom. Says Gerard: "We always had the philosophy that the people who got a company into the mess won't get you out."

Errors: fat dividends, Fiat, Hummer

While GM moved methodically to address its legacy costs, Japanese rivals such as Toyota, Honda, and Nissan were blitzing consumers with new vehicles and marketing them hard. As a result, GM's market share on Wagoner's watch plummeted from the 28.1% it held in 2000 under retiring Chairman Jack Smith to less than 20% so far this year.

"He was incrementally moving the company forward," says Anwyl. "He just ran out of time."

Wagoner made other big mistakes. GM was paying $1 billion a year in shareholder dividends until 2006, even as the company needed to borrow $14 billion to shore up its pension fund and cut new-product spending. Wagoner also got GM into a deal with Italy's Fiat Auto that ultimately cost $4.5 billion. While he was chief operating officer, GM bought Hummer, which now needs to be divested.

The Obama Administration Obama will turn GM over to Wagoner's groomed successor, GM COO Frederick A. "Fritz" Henderson, who will be CEO, and GM board member and former Northrop Grumman CEO Kent Kresa, who becomes interim chairman.

GM will be rocked hard. Wagoner is out just as Vice-Chairman Bob Lutz is set to retire at the end of April, when he becomes an adviser. Both leaders were liked and their departures will usher in an era with new management, deep cuts, and strong government oversight. However GM emerges from this crisis, it will be a very different company.

Welch is BusinessWeek's Detroit bureau chief.