(FORTUNE Magazine) – If you happened to hear a collective sigh on Feb. 2, it was the sound of disappointment on the lips of automotive types--analysts, executives, bankers, car enthusiasts--over the news that General Motors had named President G. Richard Wagoner Jr. as its new CEO, effective June 1. The sense of letdown over Wagoner's ascension has nothing to do with the man himself; he's a very smart, very capable guy. His goals are to make GM move faster, act as one company globally, introduce more innovative vehicles, and set stretch targets--all noble directions for the world's largest corporation.

The problem is that this behemoth happens to be the most monumental management challenge in American business. GM's market share has been slipping for 20 years (see chart). Few of its products excite anyone under the age of 60. It's practically a prisoner of its unions. It has nimble, more creative competition across town (Ford, DaimlerChrysler) and across the Pacific (Toyota, Honda). Despite constant reorganization over the past decade, it remains complex, bureaucratic, and highly politicized. The question is not so much, Can Rick Wagoner run GM? He can. The questions are these: Can Rick Wagoner make GM hum? Can he turn it once more into the heartbeat of America? Can any insider?

The answer, according to many people close to the auto industry, is that it won't be easy. Wagoner is a quintessential team player, but what GM really needs is Vince Lombardi. "There's a lack of realism [at GM] about the company's potential in a crowded market," says Susan Jacobs, president of her own automotive consulting firm. "The key is to move faster than Ford or Toyota, but GM is too big. And there's not much change in direction with Rick Wagoner at the helm." In this widely shared view, GM has simply repeated history by promoting an insider who won't be able to change the culture he was raised in. Only a charismatic outsider--a "Chainsaw Al" Dunlap with a brain, as one analyst says--has a chance of inciting the revolution needed to jump-start GM.

Not surprisingly, no one at GM agrees. "It would have been a major mistake to go outside," says John G. Smale, the lead director of GM's board. "It was an issue that never even came up seriously, and Rick was a unanimous choice. I doubt that question came up at Ford when Jac Nasser was promoted, and it's no different here." Vice Chairman Harry Pearce agrees: "It would be high-risk to bring in an outsider." Wagoner, 47, is even more emphatic. "An outsider could never come in here and figure it all out," he says. He has a point. GM is so hamstrung by its hidebound culture and its unions that few outsiders would want to take it on. By that measure, Rick Wagoner may have been the only qualified candidate for the job.

Reinforcing the status quo, Jack Smith, the man Wagoner is replacing, will become chairman. For some time now Smith, 61, has privately expressed an interest in retiring. Analysts believe he agreed to stay on as chairman because Pearce, 57, is still recovering from a bone-marrow transplant he received 17 months ago to treat leukemia. If Pearce gets a clean bill of health in September, the two-year anniversary of his transplant, he may well assume Smith's job as nonexecutive chairman. For now, Pearce's duties remain the same: He will oversee advanced technology development and nonautomotive businesses, including GM's highflying Hughes Electronics unit.

Smith will continue to build alliances abroad, particularly in the all-important Asia-Pacific region, and repair ties with unhappy dealers. Wagoner will keep the title of president and concentrate on global auto operations. "There's enough work to do there that we thought it was best for me to stay focused for now," says Wagoner. Another key decision--who will replace Smale as head of the board when he steps down in May--still hangs in the air. Insiders say GM board member George Fisher, the chairman and former CEO of Kodak, will get the nod. Fisher, 59, had a great run as CEO of Motorola, but he has found it difficult to extricate Kodak from its entrenched troubles.

In the early 1990s, Smale and Smith were the heroes who brought GM back from the abyss. The company lost $2 billion in 1990, $4.5 billion in 1991, and $23.5 billion in 1992 ($20.8 billion from an accounting charge). In late 1992, Smith replaced CEO Robert Stempel following a boardroom coup led by Smale. Smith, Wagoner, and others went about revitalizing nearly every aspect of the company. Last year GM had record profits of $5.7 billion on sales of $176.6 billion. Excluding a $1.5 billion strike-related hit for 1998, GM North America posted a 42% increase in income over the previous year's. But despite the booming economy and a growing core of upscale car buyers, GM has been unable to reverse its slide in market share. And for much of the 1990s, it trailed Ford in profitability.

Although GM knows there is a war going on in the global auto industry, the company often seems like a gang that can't shoot straight. It continually disappoints potential customers, particularly the most desirable younger ones, with me-too products (the new Silverado arrived long after Ford's best-selling F150) and undifferentiated brands. (Quick, what's the difference between Chevy and Pontiac? Olds and Buick?) According to a Merrill Lynch study, GM will replace less of its sales volume with new models during the next four years than the Koreans, the Japanese, or its U.S. competitors.

It's not that GM executives don't admit to some troubles. "Everything needs more work," says Pearce. "Even when we're clicking, we have a long way to go." But basically, they are their own biggest fans; they like what they see when they look in the mirror. Question the attractiveness of the new Pontiac Aztek and design chief Wayne K. Cherry will tell you that it's the most innovative vehicle like it on the market. Mention that size isn't helping GM move quickly, and Wagoner sounds like a guy who's fat and proud of it: "Bigger is better," he says. "It's the direction other companies [Ford and DaimlerChrysler] are now taking, but we're ahead of them on how to do it right."

Wagoner, a former Duke basketball player, likes to say that when he started at GM, he was an outsider. True enough: The new chief took his first job post-Harvard Business School in 1977 as an analyst in GM's treasurer's office in New York. "I was full of answers--except I had no idea what the questions were," the personable Wagoner says with a laugh. His rise has largely been through finance positions. In 1981 he went to Brazil to become treasurer of GM operations there. Six years later he moved to Canada as vice president and finance manager. Two years after that he became vice president in charge of finance for GM Europe. In 1991 it was back to Brazil for the top job. Finally Detroit called him in 1992 to become CFO, making him part of that famous turnaround team. Wagoner concedes that he's not a hard-core car guy. "I didn't tear down engines at 16," he says over lunch on his first day as CEO-designate. "But I think my product instinct is pretty good.... I work here because I have the same passion for product that any CEO does."

Cherry says Wagoner has been the major supporter of an advanced design system called APEX (Advanced Portfolio EXploration), in which 50 new vehicles at a time are actively designed, engineered, and test-marketed by a team of more than 120. "Rick is the reason our product-development strategy has turned around," says Cherry. Using APEX, GM hopes to make half its new cars and trucks look radically different. Between Detroit's January auto show and New York's in April, the company will have shown ten concepts, of which it plans to build six. But it will be at least 18 months before any are in production, which means GM runs the risk of having a competitor beat it to market with a similar vehicle. For example, GM's beefy Terradyne, if produced, will be in a heated contest with Ford's version, the Equator concept.

According to Wagoner, the future at GM is in crossover vehicles--combinations of cars, SUVs, and pickups with category-defying looks and exceptional functionality. Given the ongoing boom in sales of utility vehicles--January set another record--that's a safe bet. But there's also something to be said for knockout design. Even the gorgeous Buick LaCrosse concept shown in January has a rear area that functions like a covered pickup bed. How far such a trend can be pushed is something GM and other manufacturers are experimenting with. "Can we bat 1.000?" asks Wagoner. "Taking risks means we'll miss some." Wagoner clearly hopes the new models will finally end GM's market-share slide and prevent Ford from overtaking it in sales within the next few years.

GM is showing signs of moving more quickly. It signed a deal with Japan's Fuji Heavy Industries, maker of Subaru; bought the rest of Saab; established another partnership with Toyota and a new engine deal with Honda; and will build a new factory in Lansing, Mich., its first U.S. plant in 15 years. One of GM's most heavily promoted moves is its foray into the e-world with OnStar, an onboard, hands-free cellular system with satellite navigation. With one touch of a button, OnStar connects you to a human being who can track your geographic position on a terminal. Later this year the system will provide Internet access, but for now you can ask directions, find the nearest Starbucks, or locate a repair station. "OnStar could be the next DirecTV," says Jack Smith, referring to Hughes Electronics' recent satellite-television success. "If OnStar is valued the way DirecTV is--on a subscription basis--and we turn out eight or nine million cars a year, that's a gold mine."

Smith is convinced that Wagoner can mine the gold. "One thing drove our decision," says Smith of the board's decision to elevate Wagoner. "We have the finest CEO in the automotive industry, end of game." Asked about Wagoner's weaknesses, Smith said, "Well, if anything, he's too nice a guy." Wagoner's response: "Yeah, I may be too nice a guy, but I'd rather be nice than not." Later he says, "In the '90s we focused on consensus. But now our need to go fast suggests I've got to be more top-down than I've been.... I like to get in the game, not sit on the sidelines and coach."

For GM to return to glory, Wagoner must indeed get in the game. He needs to rough up opponents with some beautifully designed and engineered cars, not just flexible people movers. And he'll occasionally have to put down the mirror and remember that beauty is in the eye of the customer. Navel gazing doesn't count.

REPORTER ASSOCIATE Irene Gashurov