Washington -- Detroit's Big Three automakers came closer than America realized to becoming the Big Two.

General Motors Corp. ended merger talks with Chrysler LLC in November 2008 to focus on getting emergency federal aid, but Chrysler continued to believe a tie-up with GM was its best chance for survival.

In April, as both automakers were surviving on government aid and fighting bankruptcy, Obama administration officials spent two weeks working on a plan for GM to acquire Chrysler's best assets and keep the doors open on a third of its factories.

Some members of President Barack Obama's auto task force saw it as a fallback position if Chrysler failed to reach a partnership deal with Italy's Fiat SpA. Other members opposed it. But top task force officials ultimately decided it was too late in the game for a merger, too complicated and would cost too many jobs compared to an alliance with Fiat.

The GM-Chrysler tale is among new details that emerged in Detroit News interviews with more than a dozen insiders -- automakers as well as government officials -- over the past two months.

They reveal the much greater government role in the historic bailout of both companies than has been disclosed previously.

Faced with the prospect of losing 1.1 million direct and indirect American jobs, as well as a major leg of the nation's economy, the government believed it could not afford to let the industry fail.

In the end, the GM and Chrysler bailout resulted from fortunate timing and the work of a group of unknown Wall Street veterans. Under the aegis of the White House, and without congressional approval, they forced a restructuring that the automakers themselves had been unwilling or unable to accomplish -- even as they saw disaster looming.

Among the other revelations from those inside the auto industry bailout:

• The White House auto team negotiated with billionaire investor Carl Icahn to buy parts supplier Delphi Corp., but the deal wasn't sweet enough for him to sign on. Delphi is now in the hands of its bankruptcy lenders.

• GM told the government it couldn't exit bankruptcy in the end of August or September, but was pressured by the task force to exit in early July.

• GM asked the United Auto Workers to freeze the hourly pension plan; the UAW refused.
2008 changed everything

In 2007, hard-won contracts with the United Auto Workers were heralded as game-changers that would reshape the U.S. auto industry, leveling the playing field with foreign rivals.

But the world changed in 2008.

Gas prices spiked and truck sales fell precipitously. GM announced in June that it would shutter four North American truck plants. And it quietly began trying to line up government help -- just in case.

On Aug. 1 of 2008, GM reported that second quarter revenues dropped 30 percent and it lost $15.5 billion. The company cut production by 300,000 vehicles, canceled its dividend and ordered the elimination of another 5,000 white collar jobs -- 15 percent of the salaried workforce. GM stock slid below $10 a share to its lowest level in 50 years.

A month later, the credit crisis hit. Lehman Brothers collapsed Sept. 15, filing the largest bankruptcy in U.S. history and sparking a worldwide panic. People couldn't get car loans.

U.S. sales fell below 1 million vehicles in September for the first time in 15 years.

By October, GM's position was dire. After losing $80 billion over the previous four years, the automaker was burning through cash at more than $2 billion a month. Privately, its board was considering bankruptcy.

On Oct. 13, GM CEO Rick Wagoner, accompanied by board members Erskine Bowles and John Bryan, asked the Treasury Department for an emergency bailout.

It would turn out to be one of the most significant days in the history of the nation's financial system.

The 8:30 a.m. meeting on Columbus Day, in Treasury Secretary Henry Paulson's office, also included Commerce Secretary Carlos Gutteriez and other key Bush administration officials, according to Paulson's calendar.

During the 40-minute session, GM used a Power Point presentation to explain why it would soon need a government loan to pay its bills.

Bryan, also a board member at Goldman Sachs, where Paulson had been chairman and CEO, was there to introduce Wagoner and help him make GM's case.

"You don't go bankrupt because you lose money; we've been doing that for years. You go bankrupt because you run out of money," Bryan recalled. "That prospect was very much on our minds before that first trip to Washington."

The day got worse for Paulson.

The CEOs of the nation's nine largest financial institutions came to the Treasury and agreed to a government capital infusion of $250 billion to try and stabilize the credit market.

Less than a month later, after meetings with influential lawmakers, GM released devastating third-quarter financial results Nov. 7 and said it might not survive into early 2009 without a government bailout.

GM also said it would drop talks to acquire Chrysler from private equity firm Cerberus Capital Management LP, to focus on winning emergency loans.

Around that time, Paulson directed aides to prepare a contract outlining government financing, in case GM was forced into bankruptcy.

On Nov. 30, a Sunday, Paulson met with Commerce Secretary Carlos Gutierrez and top Bush White House officials, as well as members of the incoming Obama administration.

"At that meeting, we -- the Bush team -- floated a proposal to establish an auto czar," said Keith Hennessey, a top economic adviser to Bush.

The administration would have created the position to advise the president on automakers' "restructuring plan for viability"

"The key to success of this plan was that the Obama team would publicly link arms with us and agree that they would continue the Paulson policy statement when they took over after Jan. 20th.Thus, the auto company's stakeholders would know that they had no wiggle room, and that they had no chance of getting additional funding from the next administration," Hennessey said.

The White House instead negotiated with Senate Democratic leaders in an effort to shift $25 billion for emergency loans for automakers.

Other partners considered

But Fiat wasn't the only potential partner under consideration for Chrysler.

The Detroit News learned that administration officials, led by Calhoon, spent a week in Aprilworking with GM on a plan to acquire Chrysler's best assets and keep the doors open on roughly one-third of its factories.

Those talks reached the highest levels of GM, including Fritz Henderson, who took over when the government ousted Wagoner.

"What do we do in the event that we can't get the Chrysler-Fiat deal done or if the president says the terms are unacceptable to him?" said a person involved in the talks. "We didn't want to just let Chrysler liquidate. Could we save some of the assets? How would that look and how much value would be generated?

Henderson rebuffed overtures from Chrysler in February, but two months later he raised with the task force the possibility of acquiring parts of Chrysler, if a deal with Fiat faltered.

"If the Chrysler deal doesn't go through, we're interested in some pieces of Chrysler," Henderson said, according to a person familiar with the situation.

"We're interested in Jeep. We're interested in a couple of the powertrains."

GM was most interested in Chrysler's jewels: the Jeep brand, Dodge trucks and minivans.

"Fritz's view on the Ram was, it's a brand new Ram. You run it for five years for cash and not do a new one," said a person involved in the talks.

Also under consideration in GM's corporate mind: eliminating Chrysler's dealer network, and selling Chryslers at GM dealerships.

Some task force members believed a Chrysler-GM tie-up made more sense than a Chrysler-Fiat alliance because it could have added $20 billion to GM's market value, lowered the overall cost to rescue the two companies, and benefited the industry as a whole by reducing factory capacity.

On April 19, task force member and Wall Street vet Harry Wilson flew to Washington to make a "passionate plea" for supporting a GM-Chrysler tie-up. But others on the task force showed little interest, saying it was too late short of the Fiat-Chrysler deal falling apart.

But another government official noted that many of the jobs saved would have been in Canada -- and that potentially only one-quarter of Chrysler's U.S. jobs would have been saved. The dominant view became this was only an alternative if the Fiat talks collapsed.

GM planned to present a 300-page slide presentation at the first meeting. The Obama team wasn't interested. Instead, they went through 15 major issues and assigned deadlines to specific people.

With the efficiency of a drill sergeant, task force member and Wall Street vet Harry Wilson, went through each item and got a commitment of when it would be completed.

GM filed for bankruptcy June 1.

CFO Ray Young said that due to its complex accounting system, GM couldn't exit by Aug. 31 or even Sept. 30, the end of a quarter.

Wilson was incredulous: GM would lose at least $100 million a week during bankruptcy, and would be willing to incur as much as $1 billion in additional losses, because it couldn't resolve accounting issues.

"I can't think of a problem in the world I can't solve for a $1 billion," Wilson said, according to participants.

GM exited bankruptcy as General Motors Co. on July 10.

Key finding #1

Interviews with key government and industry players revealed new details about the auto bailout negotiations and the bankruptcies of GM and Chrysler:

• In April, senior GM executives -- including CEO Fritz Henderson -- held meetings in Detroit with the Obama auto task force about making a new offer to acquire a sizable chunk of Chrysler's assets.

The meetings were initially prompted by a discussion between Henderson and former auto czar Steven Rattner that GM might be interested in buying Chrysler's prized possessions: the Jeep brand, Dodge trucks and minivans, and keeping about a third of Chrysler plants and employees.

But GM's interest -- on the heels of merger talks last summer -- came too late as the Obama administration backed a deal to turn control of Chrysler to Italy's Fiat SpA. Some in the Obama administration argued the deal could have added $20 billion to GM's market value and lowered the overall cost to rescue the two companies.
Key finding #2

• The Bush administration initially planned to announce a package of roughly $25 billion in aid to four companies on Dec. 19: GM, Chrysler, Chrysler Financial and GMAC.

But talks broke down with the two finance companies in the middle of the night -- hours before President George W. Bush's announcement. GMAC would finally reach a deal 10 days later for $7.5 billion in aid, while Chrysler Financial wouldn't get its loans for nearly a month.
Key finding #3

• The Obama auto task force held secret talks in April to sell Delphi Corp. to billionaire investor Carl Icahn. The talks collapsed when Icahn held out for a better deal. Ultimately, the government backed the bid of Platinum Equity, but the Troy-based firm was eventually acquired by its bankruptcy lenders.
Key finding #4

• GM told the government it couldn't exit bankruptcy in the end of August or September, but had to be prodded by the task force to exit in early July.
Key finding #5

• GM asked the United Auto Workers to agree to a freeze of the hourly pension plan; the UAW declined. GM also apologized to UAW President Ron Gettelfinger at one point during the talks over an incorrect labor cost figure submitted to Treasury. Talks between Gettelfinger and Fiat CEO Sergio Marchionne were so heated at one point that Gettelfinger stormed out of a meeting at Treasury.
Key finding #6

• The Obama administration sat in on several GMAC board meetings -- its right as owner of 35 percent stake in the company -- but has since stopped. Auto task force members also held face-to-face talks with American Axle & Manufacturing Holdings Inc. CEO Dick Dauch to finalize a financing deal between GM and the auto supplier.