It’s a rainy Friday night in Detroit, and Bill Ford would much rather be on an ice rink playing pond hockey with his buddies or at home watching 24 with his wife, Lisa—anywhere but here, the Cobo Center, where he’s feeling hot and confined in his black tie, taking part in the kind of pomp and pageantry for which he has little patience. Tonight is Detroit’s Charity Preview gala, the biggest social event of the year and the triumphant finale of the opening week of the North American International Auto Show in January.

Ladies in department-store ball gowns sweep past dazzling Maseratis and Mustangs, sipping champagne and trying to catch a glimpse of the glitterati—captains of industry like former Chrysler chair Lee Iacocca, G.M. vice chair Bob Lutz, and Bill Ford, the executive chair of Ford Motor. There is an aura of old Vienna. This is truly Detroit in denial, or maybe pretending that it is still the center of the universe. Never mind that Ford will soon post its biggest-ever annual loss, $12.7 billion, or that Chrysler will be put up for sale, or that before long the Big Three might become the Big Two and eventually, God forbid, the Only One. Toyota is the real star of this show, but for tonight at least, everybody acts blissfully unaware, and that’s driving Bill Ford crazy. He’s always been an iconoclast in macho Motor City. He shakes hands and makes pleasantries until beads of sweat break out on his forehead, and he tugs at his collar and says under his breath, “Can you believe this? My least favorite night of the year.”

He’s trying to keep it from becoming his least favorite year too. For a long time, U.S. automakers have avoided dealing with a seemingly insurmountable problem: too few buyers for too many cars and trucks. In 2006, under the heated glare of Wall Street, Bill Ford and his board considered every option—mergers, alliances, selling the company wholesale or in pieces. A nervous Ford family—which effectively holds a controlling stake—even talked about taking the company private but dropped the idea, spooked by the debt that would involve. Recruiting a hotshot like Carlos Ghosn, the C.E.O. of Renault and Nissan Motor, had been another possibility, but Ford’s leadership doubted that Renault’s recovery was sustainable.

Ultimately, Bill Ford and his board bet on what they hope will prove to be a long-term fix, hiring a turnaround expert from Boeing to overhaul the company from the factory floor on up. The president and C.E.O. they chose, Alan Mulally, is expected to shrink and refocus the company, killing some brands and selling off others, as evidenced in the deal announced in March to sell Aston Martin for nearly $1 billion. All of this will require a delicate dance with dealers, suppliers, the U.A.W., and some increasingly impatient shareholders who plan to call for an end to family control at the annual meeting in May. “It’s a high-wire act, no question,” says lead director Irv Hockaday.

Meanwhile, an onslaught of private equity types has turned gritty Detroit into a gold-rush town. Every out-of-work auto executive, it seems, has transformed himself into a speculator. In this charged atmosphere, everybody waits to see who will start the action, and when. Is consolidation inevitable? If so, does the advantage go to the first movers or to the strongest partners? Bill Ford is bracing for anything. The family is considering hiring boutique investment bankers to analyze how the company might be affected, and to watch out for its interests if Ford is drawn into the fray.

Two conflicting forces in American business—the long-term players and the short-term opportunists—are engaged in a heated debate, and there’s no better vantage than Bill Ford’s office atop the company’s green glass headquarters in Dearborn for beholding the clash between the sharply differing outlooks. The debate is not new. But the struggle has intensified as private equity has afforded executives a quick way to dispose of troubled companies. On one side are the long-haul believers like Ford and his family.

On the other are the high-stakes players who see companies as assets to be flipped or managed in order to capitalize on the moment. That’s just good business, they’d argue. For a case in point, look no further than Auburn Hills, Chrysler’s hometown. Two years ago, DaimlerChrysler chair Dieter Zetsche was hailed for the automaker’s amazing comeback, but when the fix turned out to be short-lived, he announced in February that Chrysler would be sold. At least for now, the family members who control Ford can’t bear the thought of a similar fate. They’ve held their collective breath as the board suspended their dividends and management pledged nearly all of Ford’s assets as collateral in order to borrow more than $23 billion to finance a two-year restructuring effort. You might consider Ford the anti-Chrysler. And this, it turns out, is Bill Ford’s moment in history: the fight of his life for the soul of his company.

The family scion has always been a passionate idealist with a clear vision for the company. A century ago the Model T bestowed on society the joys of freedom and mobility. Ford Motor, he believed, could show the world it was not just do-gooderism but also good business to help solve the challenges of controlling pollution and maximizing safety. Yet his timing couldn’t have been worse. He took charge of an ailing company just as the U.S. auto industry was about to implode, and the company sank further on his watch. Now, 100 years of history and the Ford family legacy turn on how successfully he and his new C.E.O. navigate the company through today’s treacherous landscape. Can they keep Ford going, and if so, how?

Bill Ford is mainlining espresso. He has a machine in his office, and he jumps up to refill his cup. “Some things don’t change,” he says, laughing—he’s talking about his caffeine habit. But the world as Ford Motor knows it may be about to change in ways he could never have imagined. Outside his window, silhouetted against a gray winter sky, is the River Rouge assembly plant built by his great-grandfather and company founder Henry Ford. Today’s newspapers are filled with reports of a possible merger of G.M. and Chrysler.

“I’m not surprised,” says Ford. But any auto-industry merger would take at least two years of “real management stretch,” he reasons. “We felt the best thing we could do was to get our house in order. That doesn’t preclude anything down the road. Because even if ultimately a partnership made sense, we’d be a much stronger partner if we were a stronger stand-alone company.”

He sounds confident, but it took a midlife crisis to get there. Last year, in the midst of what Steve Hamp—Ford’s brother-in-law and then-vice president and chief of staff—would call a “boiling, white-hot” summer, truck and S.U.V. sales plunged as gas prices spiked. And though Ford had accelerated his Way Forward restructuring plan, the company was clearly sliding way backward. Billionaire investor Kirk Kerkorian’s push in June to marry G.M. to Renault-Nissan had put Ford’s board members on edge; they hired investment bankers from Citigroup and Goldman Sachs to analyze all of their possible choices. The news had been so relentlessly bad, Ford recalls, “there were some mornings I literally didn’t want to get out of bed.”

It was his eighth year as chair and his fifth as C.E.O. In the spring, Ford had decided not to replace his outgoing president and chief operating officer, Jim Padilla, so that he himself could delve more deeply into the company’s inner workings. As a result he’d come face-to-face not just with the shocking recalcitrance of Ford’s culture but with his own shortcomings as a C.E.O. He’d been too nice, too hands-off, too reliant on a weak team. What he needed now was someone to perform triage, and he was willing to swallow his pride and step aside if he had to. He’d found the right man for the job, one who knew manufacturing, understood unions, and could appreciate both Ford’s culture and its storied past. Best of all, he was a fixer, not a quick fix.

That man was Alan Mulally, executive vice president of Boeing and president and C.E.O. of its commercial airplane business. But after more than a month of talks, Mulally had just called to turn down the job.

Ford spent much of the weekend slumped in a chair in his house in Ann Arbor, Michigan, with a blank pad of paper and nothing whatsoever to write on it. He was out of ideas. He was, he says, “silent and devastated. I had no plan B.”

There were many scenarios, of course, but none of them palatable: a fire sale of assets or even an outright auction to the highest bidder. Or a wide-open C.E.O. search that would vet all the usual high-profile suspects—the Jack Welch protégés like Bob Nardelli at Home Depot or Jim McNerney at Boeing—and could easily result in a leader who would impress Wall Street and get Ford directors out of the hot seat but might ultimately destroy the fabric of the company.

From the outset in 1903, Ford’s business model involved more than just turning a profit. Henry Ford’s brilliance was not only the development of the assembly line but also a policy of shared interests. By instituting a then unheard-of $5-a-day wage, he created a stable workforce as well as a mass market for the company’s Model T. While other corporate executives measured decisions by their effect on the stock price, Ford stuck to a broader mandate, contributing to the community and trying to be fair to workers.

Through the years, the Ford family has upheld that philosophy by staying both interested and in control, with 3.75 percent of the equity plus a special class B stock that gives them 40 percent of the shareholder vote and the power to block takeovers. “Most companies have ever-changing executives—nameless, faceless business suits,” Ford says. “The family gives this company a sense of accountability. It gives the company a conscience.”

Nonetheless, Bill Ford was truly a reluctant C.E.O. He’d been a smart, frenetic, curious kid—a contrarian thinker—and probably a lot better suited to Silicon Valley than the Motor City. Born William Clay Ford Jr., he’d struggled with the destiny he couldn’t escape. His uncle Henry Ford II, of the third generation, had run the company from 1945 until 1979. Nobody ever said it, but Bill knew that he, as the fair-haired boy of the fourth generation, was the logical one to step up.

When he graduated from Princeton in 1979, he was tempted to follow his friends to Wall Street, but he had a sense of Ford’s larger place in the world. An environmentalist, he dreamed that the company could become a pioneer in developing cleaner cars and manufacturing. He also felt strongly (others thought naively) that the company should do more to enlist labor, not fight it. So Bill Ford trudged back to Dearborn to what he knew would be a long, grueling march through a series of corporate jobs—18 in all, including product planning analyst, head of climate control, heavy-truck engineering manager, head of Switzerland—fighting against nonfamily managers who didn’t want to see a Ford in the executive suite. He developed insomnia. He didn’t know if his career was headed anywhere, let alone toward the top. Plenty of times he almost quit.

In January 1999, though, Ford was named chair, and Jacques Nasser, head of the company’s automotive operations and one of the industry’s brightest stars, became C.E.O. Nasser was clearly the bigfoot—a darling of Wall Street and the guy who gave credence to the deal. (Ford’s stock reached a high of $68 a share by May.) While Nasser set out to transform Ford from a car manufacturer into a consumer-driven provider of automotive goods and services, Bill Ford wanted to make the place a corporate model for the 21st century.

Finally, he could push Ford to explore hybrid technology, keep it focused on the future, and try to enfranchise workers who, he believed, could be a critical asset. “There are people who think I’m a Bolshevik,” Ford said at the time, “but I really don’t care.” Many auto executives thought he was nuts. Wall Street questioned if he was up to the job. With Nasser at the wheel, though, Bill Ford could afford to be outrageous. Looking back, it’s striking how similar much of his thinking was to Toyota’s.

Nasser was flashy, but he nearly wrecked Ford by going on an acquisitions binge that included not just Volvo and Land Rover but car repair shops, salvage yards, even stakes in e-commerce ventures. His problems were compounded by the dotcom crash and, worst of all, a scandal implicating Ford Explorers equipped with Fire-stone tires in dozens of deadly vehicle rollovers. By the time Bill Ford replaced Nasser as C.E.O. in late 2001, product quality had plummeted, lawsuits had piled up, development of new cars and trucks had faltered, and the company would have a $5.5 billion loss for the year. The debacle continued to haunt the company in the form of a weakened management team and a dangerously anemic product pipeline.

Although he’d initiated the board talks that led to Nasser’s ouster, Bill Ford had not been gunning to take his place. “Bill took on the C.E.O. job because he thought he had a responsibility to take up the challenge at a particularly difficult time for the company,” says eBay C.E.O. Meg Whitman, who has become a good friend. They both have houses in Telluride, Colorado, and he is on her company’s board. “He feels a responsibility that a big part of the engine of American growth and a big part of American identity has a chance to be successful.”

But Bill Ford the C.E.O. was nothing like Bill Ford the iconoclast. “I was afraid that if I really pushed all the things I believed in, the world would think Ford was in the hands of a madman,” he says. Instead he anointed the old guard, consulting with retired executives and persuading one to return to the company. “I wish that I had listened to my instincts and less to the people around me.” He says he spent too much time trying to mollify Wall Street. “I was very proud of the fact that we’d had 12 quarters in a row of meeting or beating our estimates. But I don’t think it made any difference.” The focus on short-term profits only perpetuated business as usual, prolonging Ford’s dependence on the fat profits of S.U.V.’s and trucks and delaying the expensive retooling required to winnow costs and stave off Toyota, which was steadily gaining market share in the U.S.

Numerous times, Ford looked for a high-powered C.O.O. He says he offered the job to Carlos Ghosn in 2002, when Ghosn was C.E.O. of Nissan, and to Dieter Zetsche in 2004 when Zetsche was C.E.O. of Chrysler. Ghosn turned him down, and Zetsche said he would not consider anything less than C.E.O. Ford offered Ghosn that spot in 2005, but it was too late; by then Ghosn was C.E.O. of both Nissan and Renault.

Early last year, Ford began to worry that the company was spinning out of control. Product development was consistently over budget; sales missed their mark. The more Ford tried to find out why, the more his executives pushed back, assuring him the problems were under control. His unorthodox decision to hold off replacing his retiring chief operating officer, Padilla, “was a critical moment,” says former chief of staff Hamp. “He wanted to remove the goddamned layers and stick his fingers in the guts of the place and find out how screwed up we really were.”

What Ford found was a lot of lip service and robust PowerPoints but not a lot of action. “Things I’d assumed were happening were not,” he says. “When I gave a directive, the system would slow-walk it.… You know, if you have enough meetings … if you just slow the train down long enough, people will lose interest.” The effort to make development of new cars and trucks more efficient across the globe was way behind. So was the hybrid program. Customers were confused about what Ford’s brands stood for, but marketing was “soft stuff” and therefore got short shrift. The company remained a collection of warring fiefdoms that still operated ass-backward—“Build a great vehicle and throw it out there and hope somebody buys it.”

Ford discovered pretty quickly what he needed to know: “The best that I could do for this company was find somebody who could shake the culture of the place,” he says. “We were running against the clock.” At the annual meeting in May, shareholder activists called for the family to give up its controlling vote. In June, Anne Ford, one of Henry Ford II’s two daughters and a cousin of Bill’s, sent him an email. “The stock price is terrible,” she recalls writing him. “Maybe we ought to bring somebody in to help you.” She was so torn about sending the message that she checked the propriety with a long-time family adviser. Part of what’s held the family together through good times and bad is that they don’t gang up. She felt strongly, though, that her cousin needed some help and that it was okay to suggest it. Bill quickly replied that he would do everything he could and was looking into all possibilities. He could not let her know insider information—that he was already considering it.

Kerkorian’s attempt that month at a shotgun marriage of G.M. and Renault-Nissan rattled the industry. In early July, Bill Ford called Ghosn to find out what was going on. Contrary to widespread reports, Ford says they never discussed an alliance. (He insists that he’s never discussed one with anybody.) The influx of private equity increased exponentially the possible combinations. Familiar faces were showing up on behalf of the equity firms, and that, too, cranked up the heat. Ford’s former executive vice president David Thursfield works at Cerberus Capital Management; Nasser, at One Equity Partners. Bob Rubin, a director of Citigroup and a six-year member of Ford’s board, was becoming insistent that the automaker study all its options.

The company set up a war room. “Literally everything was on the table,” recalls Hamp, who was working on liquidity strategies to finance a restructuring. “Merge with another company, go it alone, sell off the brands, have the family pull out and get rid of their B stock—there are a billion things that could’ve happened. And there is still a big wide world of things that can happen in the future.” The family’s talks of going private didn’t get very far, says Bill Ford, because the heavy debt at the automaker’s credit arm was a “showstopper.”

“That would be really scary,” says Anne Ford. “None of us were prepared for that.”

The board meeting in Dearborn on July 12 and 13 was one that lead director Hockaday will not forget. Bill Ford, he says, delivered “one of the finest statements I had ever heard in a boardroom. ‘This company means a lot to me. I have a lot tied up, but what I don’t have tied up is my ego. I will do whatever is necessary.’ That was a stunning acknowledgement of self-awareness and insight. I was rather moved by that, and I think others were too.” He and another director mobilized to help Ford land the long shot who’d become his first choice.

Alan Mulally is fit and athletic, with smiling eyes and an irrepressible personality that nicely offsets the crisis mentality at company headquarters. He was Boeing’s secret weapon in the recent breathtaking turnaround of its commercial airplane division. How? By paring the company’s product line, focusing on the middle market, and building teams that integrated the engineers and even suppliers into design and development—all moves that would be helpful at Ford. He is passionate about quality and safety; making airplanes, he had to be. Aviation Week named him its person of the year in January, saying he played a pivotal role in saving Boeing.

Mulally long had a soft spot for the company. In the mid-’80s, as a favor to a Ford executive on Boeing’s board, he’d helped the automaker on its design of the Taurus. And as a student of Toyota’s, he knew that Henry Ford had advised the company early on in its car-making ventures.

But Mulally was also a man of deep company loyalty. He’d stayed at Boeing for 37 years because he loved everything about it—the work, the people, the airplanes. Boeing was so much a part of his identity that whenever he signed his name, he drew a little plane next to the signature. So he turned Bill Ford down on that dismal Friday evening.

The following week, Bill Ford sent Joe Laymon, Ford’s group vice president of human resources, to Seattle, telling him not to come back without Mulally. Laymon helped convince Mulally to change his mind. If Boeing had made Mulally C.O.O. or put him on the board, one Ford exec believes, he’d still be at Boeing. Says Mulally: “This was about Ford. Could Ford be relevant? Could it be a globally competitive automobile company?”

Mulally would go to Ford only if management was committed to fixing the business—and if Bill Ford would stay on as chairman. “There was a feeling on the board that we’d found our path out of the wilderness, and it was in everybody’s best interest to take it,” says Hockaday. Shortly before Mulally accepted the job, Bob Rubin left the board, telling Bill Ford in a letter that he wished to avoid the appearance of a conflict of interest that might result from his relationships with Ford and Citi, which was advising the auto-maker on its strategic review.

In mid-September, about 60 members of the Ford family gathered at Greenfield Village, the Ford history museum complex, to meet their new C.E.O. Previous ones from outside the family—Nasser and Alex Trotman—had been cold and aloof. Mulally could barely contain himself. He’d brought a copy of the family tree, intending to get some autographs. “These were the Fords,” he says. “This was American royalty.”

As he gave Mulally center stage, Bill Ford was surprised to feel “a lot of conflicting emotions,” he says. “I was thrilled Alan was here. But I felt like maybe I’d let the family down.” He couldn’t help remembering how, when he’d become C.E.O., “they’d all been so happy.”

Ford warns that he’s not going to play up to par tonight, a Monday in late February at a rink in a blue-collar suburb of Detroit. That’s because on the weekend, he played five 90-minute games of pond hockey over three days in a tournament in Eagle River, Wisconsin, and dislocated his shoulder—again. It was worth it, though, because his team took the gold medal.

Anybody doubting how wrenching it was for Ford to relinquish the C.E.O. job should see him play hockey, even on an off night. He’s proud. He’s competitive. He hates to lose. When an opponent slams him into the boards, Ford goes after him like a mad hornet until he gets the puck back. But here on the ice, it’s also clear he’s got a bigger role to play. Bill Ford is the brand. And for all his fine breeding, he seems most in his element with the average Joes who are Ford’s traditional customers. Take his hockey team, for instance. One is a security guard; another, a photographer. “I think that guy sells PVC tubing,” he says, as a teammate skates by. In the weekend tournament, a game against a team from Ford’s Wayne assembly plant got kind of rough. When a player called him an asshole and punched him in the chin, Ford used his stick to knock the guy’s legs out from under him. But when it was all over, the same player approached him, asking, “Mr. Ford, can you sign my jersey?” Of course, Ford did.

Part of the strategy going forward is to tap into that underlying reservoir of goodwill. Bill Ford will be critical to patching up contentious relationships with dealers and employees who will play a pivotal role in Mulally’s turnaround plan. His less adversarial stance toward the U.A.W. has already paid off in some of Ford’s restructuring and may prove invaluable when contract talks begin later this year.

So far he’s determined to stay out of Mulally’s way. “A shadow C.E.O. would wreck everything,” Ford says. On business decisions, that’s easy. On people decisions, it’s harder. “I have to really bite my tongue,” he says, “but you know I may have been too close to some of the people to see them clearly.” International operations chief Mark Schulz departed after turning down what may have seemed like a demotion. That was hard on Ford, people close to him say. Schulz was one of his best friends.

Meanwhile, Mulally has blown through protocols. He reorganized Ford’s car business into three parts: the Americas, Europe, and Asia. In weekly meetings, he manages by metrics, requiring execs to post their numbers, forcing transparency and keeping the pressure on. Not only does Mulally ignore industry conventions, but he also doesn’t seem to know or care what they are. He called Chrysler C.E.O. Tom LaSorda to offer “moral support” when the company went up for sale. He raised eyebrows when he decided to bring back the beloved Ford Taurus—by slapping the name on the Ford Five Hundred, its slow-selling sedan. Eighty percent of the public knows the Taurus, he reasons, while less than 35 percent know the Five Hundred.

Some on Wall Street still relish a marriage of Ford with Renault-Nissan. Not Mulally. If a partnership is inevitable, it’s clear where his heart lies. “If you think I have a relationship with Ford, I have an unbelievable relationship with Toyota,” he says. Because Boeing essentially created the aerospace industry in postwar Japan, he’s been there 47 times, he explains. “Every time I go, I always check in with Toyota. It’s history. It’s family. Safe, efficient transportation for all, right? Think about the parallels.” But he won’t say whether his remarks hint at some kind of partnership down the road. No comment, he teases.

Mulally tells his troops that Ford has taken out “one of the largest home-improvement loans” ever to finance a return to profitability in 2009. “We are under a great deal of pressure.… The bankers don’t want assets; they want you to be viable.” To that end, he will have closed nine plants by the start of 2009 and eliminated more than 40,000 jobs. He’s set a goal that 70 percent of Ford’s vehicles will be brand-new or significantly improved by the end of next year. He’s reengineering both the cars and the factories to bring down costs. All told, the company expects to burn through $17 billion in cash in the next two years.

It’s all on the line. For the last year, the family had been preparing for bad news, but Anne Ford, for one, wouldn’t feel the full import of that path until she opened the newspaper on November 28 and read the headline. There it was in black and white. The company had mortgaged everything: the factories, the offices, the patents, the trademarks. “The blue oval, even,” she says, the one with her great-grandfather’s name inside. “I felt sick. I felt terrible. Because if we lose, we lose everything.” One thing she’s sure about. The company has to succeed. “Oh, my God, yes. It stands for America, doesn’t it?” And a future without Ford? “I don’t even want to think about it,” she says.