by Patricia Sellers

You might call Al Koch the world’s biggest trash collector. As bankrupt General Motors (GM) splits into two parts — New GM, containing Chevrolet, Cadillac, Buick, and GMC, and Old GM, containing designated bad assets such as Pontiac, Saturn, Hummer, Saab — Koch is the hired gun who’s supposed to create value from that latter lot.

Bringing “New GM” out of bankruptcy will be difficult enough. Why would anyone take the tougher slog at “Old GM”?

This is what Koch does — the toughest turnarounds. He’s vice chairman at restructuring consultancy AlixPartners, which works on saving sick comapnies globally but has been a Detroit mainstay for decades. AlixPartners’ clients have included DeLorean’s creditors in 1984, Detroit (the city itself) in 1994, and Kmart in 2002.

Koch, now 67 and a 14-year veteran of the firm, has served as interim CEO of crippled companies such as video-game distributor Handleman (HDLM) and manufactured-home builder Champion Enterprises (CHB). But his most memorable job was at Kmart in 2002. Kmart was the largest retail restructuring in history and, as it turned out, one of AlixPartner’s big successes.

As Kmart’s interim CFO through its bankruptcy, Koch got lucky. When I interviewed him in late 2005 for a story about investor Eddie Lampert, he said that he and his restructuring-expert colleagues had never heard of this young investor who had swooped in and bought Kmart bonds at 40 cents on the dollar. “To most people, Kmart looked like a pile of trash,” Koch said. “We were told that this hedge fund guy had bought a huge portion of Kmart and wanted to get it out of bankruptcy fast.”

Lampert pressed Koch and the other restructuring pros, who were earning $10-20 million a month during Kmart’s bankruptcy, to exit Chapter 11 quickly. Lampert argued that neither customers nor management talent would be attracted to a bankrupt Kmart. The company emerged from bankruptcy in May 2003, a year ahead of schedule. Lampert, who had invested some $800 million for a 54% ownership stake, merged Kmart with Sears two years later to form Sears Holdings (SHLD).

Old GM won’t be as smooth or as quick as Kmart was. As my colleague Alex Taylor notes, “new GM” will have an incentive — from the U.S. government, new owner of a 60% stake –  to exit Chapter 11 rapidly, possibly in 60 to 90 days. The Old GM restructuring, meanwhile, could take years.

As Old GM’s chief restructuring officer, Koch will be negotating separation agreements with New GM and commandeering efforts to unload or liquidate those dud brands such as Saturn and Hummer.

His influence could turn out to be broader than his marching orders designate. After all, he’s worked with GM several times over the years. These past few months, he’s helped negotiate the sale of New GM assets to the government. Now he’s reporting to CEO Fritz Henderson and to GM’s board as well. As a guy who lives and dies by finding value in junk, Koch surely won’t take his shot at making history lightly.

“How to find a job.” That’s the cover story in the new Fortune, out this week.

Here’s one place to find a job: Workout firms that help companies in trouble. Fred Crawford, the CEO of AlixPartners, came by Fortune’s offices late last week and talked about his buoyant business. “We have 850 people, and we’ve been growing 20% to 30% a year for the past decade. We think that’s sustainable.”

The elite in this down and dirty business of corporate restructuring include AlixPartners and Alvarez & Marsal, the outfit that’s now in charge at bankrupt Lehman Brothers (honcho Bryan Marsal replaced Dick Fuld as Lehman’s CEO in January). At AlixPartners, Crawford is a hybrid of sorts: He earned his chops at other consulting firms helping relatively healthy companies like Procter & Gamble (PG), Fedex (FDX), Coca-Cola (KO) and Disney (DIS) build their top lines.

Now, at AlixPartners, he’s selling two main types of services: turnaround/restructuring (where past clients  include DeLorean in 1984, Detroit in 1994, and later Enron, Refco, WorldCom and Kmart) and “business performance improvement.” The latter service is for companies that want to stay out of the former category. Among the companies on that roster today: Borders and Saks. Beleaguered Borders’ (BGP) stock has fallen from $25 in 2007 to under $1. Meanwhile, Saks’ (SKS) stock decline has been almost as steep, to $1.88.

Working with–and making money from–a wide range of companies, struggling and really sick, gives Crawford a good view on the economy. So what’s his outlook for recovery? Not good.

Crawford mainly follows three indicators: unemployment, housing values and consumer spending and saving. The latter is most critical, he says–and he’s worried based on the findings in an AlixPartners survey of 5,000 U.S. households, completed in March. Americans say that even after the recession ends, their spending will return to just 86% of pre-recession levels. “That would take a trillion dollars out of the U.S. economy annually,” says Crawford, admitting that he finds that big of a spending dip hard to imagine.

Even so, he says, people who predict a recovery this year “are just dead wrong.” He adds: “I think this will be a severe recession with a long tail on it.” And where will crisis strike next? Regional banks, Crawford predicts. Gloom, he says, is “the new normal.”

We love this ad:

“You can file our obituary where the sun don’t shine. It’s times like these that raise the important questions. Do you cower, or do you live free. Do you succumb to fear and doubt, or do you seize the throttle and give it a fearless twist forward. From where we sit in the saddle, we see American companies and good old American ingenuity wrenching the life back into this economy of ours. The people rolling up their sleeves and getting it done are the same ones that ride our motorcycles, and you’ll find them wearing blue collars, white collars, pink collars or no collar at all. We’re proud to count ourselves among them. Maybe you’re ready to feel the same way.”

– This Harley-Davidson (HOG) ad—bolstered by the tag line “Screw it. Let’s Ride”—debuted in Sunday’s New York Times. Talk about populist fever! The ad’s text, in red and blue against a white two-page spread, form a giant American flag. Carmichael Lynch, Harley-Davidson’s longtime agency, created the ad.

So here we have another midwestern maker of great American transport machines. Harley got through its brush with bankruptcy in the ’80s. Will General Motors get through too now that Rick Wagoner is no longer behind the wheel? Today GM (GM) stock dropped 92 cents–25%–to $2.70. Who would have imagined that Harley-Davidson would ever have a stock-market value twice that of GM’s?–Jessica Shambora

Barack Obama’s hair is turning gray. The New York Times reported the other day that a President typically ages two years for every year in the job. Thank goodness our new President is only 47 years old. The way things are going right now, I suspect he’ll age twice as fast as other Presidents.

We learned this week that things are worse than we thought. General Electric (GE) CEO Jeff Immelt, who used to be one of the world’s most admired bosses, saw his stock dip below $6 on Wednesday, down from $30 a year ago. (It’s now nosing toward $7.) Citigroup (C) CEO Vikram Pandit watched his shares drop below $1–a dollar! The stock-market capitalization of Citi, with shares now trading at $1.02, has sunk to $5.6 billion. Meanwhile General Motors’ (GM) market cap is below $1 billion. GM’s auditor, Deloitte & Touche, said yesterday that the automakers’ survival is in “substantial doubt.”

And today we learned that America’s unemployment rate has reached a 25-year high. Job losses in the past six months topped 3.3 million. “These days, people have either two jobs or no job,” Andy Serwer, my boss here at Fortune,  likes to say. I feel it. Between writing for the magazine, blogging, and chairing Fortune’s Most Powerful Women Summit, I’m pushing myself like never before. I was in my office until 2:45 a.m. Thursday morning. I hadn’t stayed that late since the ’90s. Made me feel young, actually.

I’m lucky. I have a job. And one that I love. I look around my office today and I see the smartest, hardest-working people I’ve ever been around. (And I’ve been here at Fortune for 25 years.) Today, slackers simply do not survive. Don’t you wonder if these twentysomethings–the enterprising and lucky ones who have jobs today–will emerge as a new Greatest Generation of workers? They might turn out to be better than we are.

I was in California this past week and I’m happy to report that the Golden State did not fall into the Pacific Ocean.

It seemed it might, as inches of rain drenched Silicon Valley and the state government fought off insolvency. What a disaster California is right now, even after the legislature yesterday approved a plan to close a $42 billion budget deficit and end the “fiscal emergency” that the action-hero governor, Arnold Schwarzenegger, declared last November.

California now boasts the highest sales and income taxes in America, plus red tape galore that drives too many businesses out of the state. Business owners told me that this new budget – which raises taxes, slashes public services, and ushers in big-time borrowing – will enhance the already ripe opportunity for states like Arizona, Colorado and Texas to lure away employers.

The unemployment rate in California is now a whopping 9.3%. This week, a new report showed that employment in Silicon Valley is falling for the first time in years. And as my colleague Jessi Hempel – who has a Fortune cover story about Facebook in the new issue – recently noted, there are no technology breakthroughs, like the microchip or the Internet, to yank the Valley out of its slump this time. While a few giants with mounds of cash – Oracle (ORCL) and Cisco (CSCO), to name two – are on the trail for acquisitions, some stalwarts are now baring their vulnerabilities. Apple’s (AAPL) computer sales at retail fell in January, for the first time in three years, reports NPD Group. On Wednesday, Hewlett-Packard (HPQ) posted a 13% decline in quarterly profits as sales in its computer and printing divisions tumbled.

I had one unexpected and uplifting encounter on my California visit: On Wednesday evening, I met Doris Drucker, the widow of Peter Drucker, the legendary management guru who died in 2005, one week shy of his 96th birthday. Doris, who was married to Peter for 58 years, is almost 98 years old. She plays tennis twice a week – from 8:30 to 10 a.m., she told me, “though I’m not as fast as I used to be.”

A short and stocky native of Germany, she stands perfectly erect. She doesn’t use a cane. She just renewed her driver’s license. She’d just been to the gym on Wednesday; light weights do her wonders. She has four children scattered about the U.S., but she does just fine living on her own in Claremont, where the graduate school of management is named after her husband. He taught at the school until he was 92. This coming November, he would have turned 100.

Peter Drucker, as you may know, coined the term “knowledge worker” and wrote about the rise of the information society and its implications for companies and workers. Lifelong learning is ever more important, he contended, and his widow is a living testament to this principle. In her long life, she’s been a grad student at the London School of Economics, a law student at the Sorbonne, a masters-degree recipient in physics from Fairleigh Dickinson University, and a scientific inventor. Her memoir, “Invent Radium or I Will Pull Your Hair,” came out when she was 93. Now, she says, she’s writing a book about information overload.

Meeting the remarkable Doris Drucker prompted me to reread a story, “Managing in Chaos,” that my colleague Geoff Colvin wrote in 2006. It’s timely. In the story, Geoff notes that Peter Drucker identified “leading change” as the key management challenge of the 21st century. To lead change, Drucker said, managers must “abandon yesterday.” In other words, get rid of what no longer works.

Now we see leaders – of corporations that he studied like General Motors (GM) and Citigroup (C), of governments, of not-for-profits, and beyond - struggling to abandon yesterday and determine what tomorrow will be. What do you think “the father of modern management,” as Drucker was known, would say if he could see all this tumult and desperation?

By Jessica Shambora

It’s Christmas week, always a quiet time at workplaces across the country. But this holiday is anything but typical. The quiet will stretch way beyond Christmas at many offices and factories this year.

No surprise, the Big Three automakers are temporarily shutting North American plants, in numbers correlating to their varying degrees of peril. Chrysler closed all 30 of its plants for a month. General Motors (GM) followed suit with 20. Ford (F) will shut down 10 plants for an extra week in January. Overseas production is also winding down, dashing hopes for relief  from emerging markets.

While we’re used to Europeans taking lots of time off, this holiday is exceptional. Among those set for an extended close: a Nokia plant in Hungary, Michelin factories in Ireland, Fiat plants in Italy, and a unit of stainless steel-producer, ThyssenKrupp, in Germany.

Workplaces across North America, meanwhile, such as a Whirlpool plant in Middle Amana, Iowa, will close for longer than usual. Even state governments, from California to South Carolina, are proposing unpaid work furloughs as they struggle to cut budgets.

And in Silicon Valley — where I’m writing from this week — companies are jumping to cut costs, having learned a thing or two from being at the forefront of the last downturn. Hewlett-Packard (HPQ), Cisco Systems (CSCO), Apple (AAPL), Adobe, Applied Materials and Advanced Micro Devices all plan to extend regular holiday breaks.

As the New York Times echoes in “More Companies Cut Labor Costs Without Layoffs” on the front page today, companies are turning out the lights to cut operating costs and save on compensation. Some pay reduced wages or none at all during their shutdowns. At Dell (DELL), for example, Christmas is part of a paid week off as usual. But management is urging employees to take five unpaid days off anytime during the fourth quarter. That’s one way to improve earnings!

And at H-P and Cisco, employees are being told which days to take off around the holidays; those extra days count against paid vacation. That’s like a lump of coal, but you don’t see too many employees protesting loudly, do you? Maybe because a forced short vacation is, after all, better than a permanent one.

“You think I would have gone through what I did the last two months if I didn’t want to stay?”

– General Motors (GM) chairman and CEO Rick Wagoner, reiterating today that he’s determined to keep his job. In exchange for a $13.4 billion rescue package (which will come from the government’s $700 bllion TARP fund aimed at banks and Wall Street firms), executives at GM and Chrysler agreed to limits on pay and perks. No more corporate jets. Wagoner earns $1 a year.

Maybe saving GM — and his reputation — will be worth the sacrifices. GM stock popped 23% today to $4.49. Ford (F), which has more cash on hand, isn’t taking bailout dollars, at least yet. Its shares rose 4% today to $2.95. Even as Ford’s stock-market value has shrunk to $6.8 billion, it’s more than twice that of GM’s.

“We have a chance of being hung with a softer rope.”

– Denny Fitzpatrick, chairman of the California New Car Dealers Association, in the New York Times today.  A government bailout of the Detroit automakers looks increasingly likely, but that’s not necessarily good news for Fitzpatrick, a Chevrolet-Hummer dealer, and his brethren. The big three — General Motors (GM) , Ford (F) , and Chrysler — have told Congress that they need to cut their dealer networks to survive. The dealers have no choice but to root for the bailout. And although they will have the law on their side when it comes to the car manufacturers breaking their contracts, many may be under too much financial stress to put up a fight. The end may come later, but it’s still coming, for many dealers — and possibly for the automakers, bailout or not.

‘Tis the season for confessions. First comes denial — every mortal’s classic response in a crisis. But in times like these, any leader worth his or her lofty position and pay recognizes mistakes soon enough. True confession is the mark of a confident leader. So, what’s your biggest mistake?

In the past week alone, we’ve noticed a positive trend: leaders fessing up. “GM has made mistakes in the past,” General Motors (GM) CEO Rick Wagoner told Congress on his revisit to Washington last week. Duh, you say? Well, for the boss from the capital of denial, Detroit, this was a serious gear-shift. The front page of Saturday’s New York Times detailed the errors of Wagoner’s ways, as he saw them: agreeing to expensive union contracts, failing to invest enough in small cars, and failing to adapt its plants for flexible manufacturing. Wagoner’s admissions should help GM secure its bailout funds, but they may be too little too late to help him keep his job.

Vikram Pandit, Citigroup’s (C) CEO, suggested his own errors as well. Last Monday, TV interviewer Charlie Rose asked Pandit, “What are the lessons you have learned…and what do you regret?” When he stepped into the top job late last year, Pandit told Rose, he inherited loans and businesses that he wished Citi didn’t possess. “We’ve moved really fast,” Pandit said, adding, “I keep thinking about it. Is there something I could have done sooner?”

What that might that be, the Citi chief didn’t say. But Pandit’s obvious self-doubt that he moved quickly enough to fix Citi seems healthier than the obfuscation of another Citi exec, Bob Rubin.

The onetime U.S. Treasury Secretary, who went on to be chairman of Citi’s executive committee and is now a senior counselor and board member, responded this way to the Wall Street Journal’s query about regrets: “I guess that I don’t think of it quite that way.”

Asked if Citi’s board bears some responsibility for the company’s near-fatal financial problems, Rubin said, “Maybe there are things, in the context of the facts we knew then, we should have done differently.” Given his evasiveness here and elsewhere (including in a prescient year-ago interview by Fortune’s Carol Loomis), the critics are piling on Rubin. In his Sunday New York Times op-ed, The Brighest Are Not Always the Best, Frank Rich wrote that Rubin has sounded “as self-deluded as [former Defense Secretary Robert] McNamara in retirement.”

Sure, it’s easy to criticize these days. And what a boom time for critics and cynics it is! In movie theaters now, Frost/Nixon, about a TV interviewer poking Richard Nixon to admit to crimes in Viet Nam and Watergate, is a relevant and suspenseful tour de force.

Meanwhile, last week, we saw on real-live news President Bush telling ABC’s Charlie Gibson what the rest of the world has known for a while: Saddam Hussein didn’t possess WMDs when the U.S. declared war on Iraq: “The biggest regret of all the Presidency has to have been the intelligence failure in Iraq,” Bush admitted to Gibson. “I wish the intelligence had been different, I guess.” If he had known  then that Saddam’s WMD’s didn’t exist, would there have been a war? “That is a do-over I can’t do,” the President replied. “It’s hard for me to speculate.”

So we see in our multiple global crises: Confession is one necessary step toward recovery. But it’s not sufficient. Management guru Jim Collins noted this last week in a terrific talk at the Fortune 500 Forum in Washington, D.C. Outlining five stages of decline, Collins said that “denial of risk and peril” is one stage, but leaders can recover if they confront “brutal facts” — i.e. the mistakes that took them downhill in the first place.

In the end, however, even a true confession isn’t good enough. Consider some evidence. An amusing Web site called perfectapology.com cites as “the perfect business apology” JetBlue (JBLU) founder David Neeleman’s pride-swallowing PR effort after the February 2007 ice storm that left planes stranded on New York runways and the airline’s reputation in tatters.

The fact is, though, that Neeleman’s apology, coupled with JetBlue’s clever Customer Bill of Rights, did loads of good, but it wasn’t enough to keep him in the CEO job, as he told me last spring in “Lessons of the Fall.” The board decided that Neeleman, though contrite, lacked what it takes to carry JetBlue back to greatness. So they fired him.

Note to Wagoner and Pandit and all those other CEOs under the gun: Admit your mistakes, but then, you’d better deliver.

“The idea of a company that’s earning money, not losing money–that’s not, let’s say ‘industrially endangered’–to have just cutbacks so they can earn another $12 million or $20 million or $40 million in a year, where no one’s counting, is really a horrible act when you think about it, on every level.”

– IAC (IACI) Chief Barry Diller at yesterday’s Reuters Media Summit. During troubled times like these, Diller contends, companies have a higher obligation than the pursuit of earnings–namely, not adding unnecessarily to unemployment. Following his comments: today’s government report that the U.S. shed 533,000 jobs in November. It was the largest monthly loss since December 1974. Those job cuts bring this year’s total to 1.9 million. So now, according to cnnmoney.com, total jobs lost in this recession surpass the 1.6 million lost in the 2001 recession.

Diller also blasted the chiefs of General Motors (GM), Ford (F) and Chrysler for being “incredibly, shockingly stupid” on their first bailout go-round: “Why would I give money to someone so dumb to go to Washington to ask for money and fly in a Gulfstream?” – Jessica Shambora