Rick Wagoner: too much Mr. Nice Guy; GM's recent shake-up means it's make-or-break time.

General Motors has spent decades trying to figure out how to remain atop the business it had led for the previous half-century. But those ambitions came to an end when CEO Rick Wagoner made the shocking announcement in March that GM would have a terrible 2005--and then followed that up in April with the company's biggest management shake-up since 1992.

Actually, Wagoner detailed drastic cuts in expectations and profit projections only for this year. But tacitly, at least, Wagoner also conceded the inevitable: GM would no longer try at all costs to remain the world's biggest automaker.

Toyota will be taking over that position soon, and everyone associated with GM is trying to figure out how it happened. There are many external factors to blame, starting with last year's explosion in costs for steel and other commodities. And fast-rising gasoline prices are denting sales of SUVs and trucks.

But many more reasons can be placed directly at the feet of Wagoner and his predecessors. "Legacy" obligations from the opulent pension and health care benefits for GM's aging work force are choking the company, but Wagoner has never forced the health care issue with the union. Even Chrysler beat him to that, recently getting UAW leadership to require workers to pay annual medical deductibles of up to $1,000.

After 20 years of botched reorganizations and alleged structural overhauls, GM still sustains a bloated, slow-moving bureaucracy. It is known in the industry for overpopulating meetings and for blunting its cutting-edge thinkers. "It's not any one individual," says a top supplier executive. "It's the beast itself. It's like a dinosaur in your living room."

GM shed the moribund Oldsmobile brand a few years ago, but Wagoner has insisted on continuing to prop up Buick and Pontiac, though both of those divisions have been losing sales for 20 years.

Even GM's ballyhooed product czar, Vice Chairman Robert Lutz, hasn't exactly unleashed a torrent of winning models. He nixed the idea of preparing lower-cost derivatives of Chevy's SSR, and the dazzling but pricey two-seater truck is languishing in showrooms a year after wowing the automotive press. Buyers began yawning over Chevrolet's Cobalt compact car, Pontiac's G6 sedan and the derivative Buick LaCrosse even before these Lutz-refined designs debuted earlier this year.

And auto-manufacturing guru James Harbour says that GM has a systemic product-development problem because it still replaces vehicle lines whole hog instead of making quick, incremental advancements like the Japanese do.

Only because of these self-inflicted wounds is GM so vulnerable to competition in what remains a very healthy North American market. GM's share is 26 percent and falling instead of holding close to the 30 percent goal it has repeatedly embraced.

There's one more thing: hubris. After his ascension to CEO in 2000, Wagoner promised to bring GM roaring back. When GM's post-September 11 rebate program led to a temporary uptick in market share, that looked feasible. But GM stuck with the discounts too long, mistaking those customers for ones who would stick with GM vehicles. The brain trust also doubted until it was too late that the Japanese could steal a significant chunk of GM's truck and SUV sales.

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Insiders say that five years ago, Wagoner could have decided to let GM's market share drift to a profitable 25 percent and that would have mitigated today's mess. But the new CEO couldn't or wouldn't. Now GM is drowning in capacity, flirting with a junk rating for its bonds, dealing with losses of $2.6 billion in Europe over the last few years, paying $2 billion to get out of its botched acquisition of Fiat, and struggling for traction in Asia.

His April management changes point to some streamlining. But "you can't downsize too fast, or the organization goes dysfunctional," warns David Cole, the University of Michigan's auto-industry expert.

This, then, is the moment of truth for Wagoner: Can he join the ranks of auto execs who turn around their companies, or will he preside over a sinking ship?