RICK WAGONER ISN'T hard to recognize. At 6-foot-4, the former Duke University basketball player has graduated to chief executive of American icon General Motors. Even so, as he strides through a lobby showcasing dozens of GM's newest models toward his office in the glass skyscraper of Detroit's Renaissance Center, he pauses to flash his badge to the security guard.

By most measures Wagoner shouldn't even have a badge to flash. Who isn't familiar with the trials of GM? The automaker logged its biggest loss ever last year, $39 billion that's a loss of more than $100 million a day. GM's share of the U.S. auto market continues to slide, now down to 24 percent, as foreign rivals keep up their relentless assault. And the stock has tumbled so far that its market value is a fraction of its former self, at $12 billion.

But Wagoner is still hanging on, and his fans say the 55-year-old's management style may be one reason there hasn't been a mutiny. In an industry known for limelight-craving chiefs who rule by fiat, the Virginia native has hired people who have garnered some attention, like design maven Bob Lutz. It also helps that Wagoner has scored some victories historic ones, even. After decades of drowning in wage, health care and pension costs, Wagoner won significant relief from the United Auto Workers, saving $4 billion to $5 billion in future costs. And after years of promises of better cars, GM has introduced legitimate winners, like the Chevy Malibu, recently named "North American Car of the Year" by automotive journalists.

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That's not to say everyone is sanguine. Wagoner fended off billionaire investor Kirk Kerkorian's efforts to forge an alliance between GM and rivals Nissan and Renault in 2006. But with the stock down 50 percent since last October, some, like William Smith, president of SAM Advisors, are still peeved. "It's a disaster," says Smith. "They have the best product lineup and can't capitalize." SmartMoney staff writer Reshma Kapadia sat down with Wagoner to discuss how any automotive CEO could be upbeat and what GM can do to turn around.

With all the challenges facing you, what tops your priority list?

We need to drive revenue growth. Frankly, that's hard to do in a weak market, but that's what is really going to emphasize the extent of the changes we made and translate our improvements in products, quality and manufacturing into better financial results.

How do you do that?

We've cut $9 billion in fixed costs through plant consolidation and job cuts, and think we can cut another $5 billion or so over the next three years with lower health care, pension and labor costs with the new United Auto Workers agreement.

A lot of people are talking about a U.S. recession. Can the great American automaker still turn things around?

"I'm a big shareholder myself; I share the frustration. I talk to major investors regularly, and of course they would love to see a higher stock price."

Rick Wagoner

Sure. There are a number of things that will play out over the next couple of years that should improve our earnings. When we complete the 2007 labor agreement, we will get $4 billion to $5 billion in savings, a half billion when our supplier Delphi gets out of bankruptcy, and if the U.S. industry gets back to average sales, that will be $1 billion to $1.5 billion, conservatively. We don't have the profitability we want, but we are improving our cash flow. So even in a very difficult U.S. environment, help is on its way. But we're not waiting for help to get here. We are coming up with other ways to improve our cost structure, including a buyout offer for U.S. hourly employees.

A lot of people have pointed to last year's loss as a sign that execution hasn't come through.

Nothing could be further from the truth. If anyone is interpreting that, they are not looking at the data. It's clear the loss was driven by an accounting requirement, pure and simple, and a significant loss in GMAC business. Behind those the automotive business continued to show significant improvements, and North America produced 300,000 fewer units and still showed improvement in earnings. That's worth a huge amount of money and highlights that we're doing what we said we would. We've executed well, and on top of that, product momentum is moving nicely.

March's industry auto sales in the U.S. were dismal, and forecasters' outlooks are bleak. Why do you think sales will rebound later this year?

Recent reports are somewhat of a concern, but we still expect the aggressive interest-rate cuts and other stimuli to start to have an impact this summer.

Some of GM's new cars have received critical acclaim, but many consumers still equate GM with lower quality. How do you change that?

We have to deliver on the promise of a car, be competitive on quality and reliability, and give the vehicle an appearance so exciting, people want to give it a try. We have significantly improved the number of people shopping in the midsize category for Malibus; we have to translate that into sales. I'd say so far so good, but it's very early in the game. This is not a one car, two cars, three-year deal. We have to stay on this for a good long time and over time build brands and reputations that can carry us forward.

While GM's operations in emerging markets like Brazil have been doing well, Germany has been weak. How is that turnaround going?

It's not time to break out the Champagne, but we're moving in the right direction. If you look at the economy, it suggests demand over time should improve, so we hope it will get on a positive track, perhaps even this year. But no doubt it's been tough.

Boosting fuel economy and reducing emissions are increasingly important for automakers. But the technology to do so isn't cheap, and it's not yet certain which method will win out. So how do you proceed when money is already tight?

It's not easy, but we basically have said it's critical to our future success and to achieve what I think could be strong growth for the industry. It's very high on our priority list on how we allocate our R&D, engineering and infrastructure spending, so we're making whatever tradeoffs we need to. But the amount of cash and expenses are pretty high and going to get higher, so we have to structure the rest of our business to accommodate that.

What do you say to those shareholders who are fed up with the stock price?

I'm a big shareholder myself; I share the frustration. I'm confident that as the market psychology turns and assumes some of these issues are behind us, we'll be well positioned. I talk to major investors regularly, and of course they would love to see a higher stock price. But they say, "Keep going and do the right stuff for the future." So that's what we are trying to do.

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