Ford Motor Co.

From the Model T to the Mustang, Ford Motor Co. has produced some of the world's most iconic and beloved cars. But the company founded by Henry Ford in 1903 didn't just revolutionize what we drive. Ford Motor introduced the world's first moving assembly line in 1913. Henry Ford pioneered mass production techniques and made labor changes at his company that rippled through the economy, doubling wages to $5 a day for assembly line workers in 1914, cutting shifts from 9 to 8 hours per day, and instituting a 40-hour work week. His idea, novel at the time, was that hourly wage earners should make enough money to afford the products they manufactured. All of which made Ford Motor one of the few carmakers to survive the Great Depression—and made Henry Ford a legend in U.S. industrial history.

Ford Motor's recent history has been far less glorious. The U.S. market share for Ford vehicles in 2006 (excluding in-house brands such as Mazda and Volvo) came in at 15.5%, down sharply from around 25% in 1997. The firm lost $7 billion through the first nine months of 2006, largely in its North American market, and isn't forecasting annual profits until 2009. Alan Mulally, who became CEO in September, taking over from Bill Ford (Henry's great grandson), is presiding over a huge restructuring plan dubbed the Way Forward. The company is closing 16 factories and cutting its North American workforce by 58,000—nearly half the payroll.

Ford's financial outlook appears grim. The company expects to burn through $17 billion in cash over the next few years, and for the first time in its history is mortgaging assets to raise money; the company recently secured $18 billion in financing by pledging factories as collateral. Ford's market capitalization is now around $15 billion—less than a tenth of Toyota's, which is on track to replace Ford as America's second largest automaker in 2007.

Like GM, Ford made some disastrous product planning decisions years ago from which it has yet to recover. With the market for SUVs and pickup trucks sizzling in the late 1990s and early 2000s, Ford plowed money into those product lines and neglected the car market. From 1998 to 2003, Ford launched just one all-new car in North America, the Focus, which was designed and engineered in Europe. Ford is now scrambling to produce more stylish, fuel-efficient cars that can compete with Japanese and Korean brands. Sales growth of the gas-guzzlers, meanwhile, has stalled as fuel prices have soared, and Ford must offer generous financial incentives to move those vehicles off dealers' lots—all but killing profits.

Ford has also been riven by management turmoil. Before Bill Ford took over in October 2001, the company was run by a combative and unpopular boss, Jacques Nasser. The huge Ford Explorer tire recall, involving potentially faulty tires made by Firestone, led Nasser to resign after a relatively brief stint as CEO. But Bill Ford's tenure was not smooth either. It was marked by high turnover among senior executives and a steady decline in Ford's finances and vehicle sales. With the restructuring plan in place in 2006, he agreed to step aside in favor of Mulally, a turnaround whiz who came from Boeing.

For Ford, the biggest challenge ahead will be to design and engineer vehicles that can compete more effectively against cars from Toyota and Honda. That won't be easy. Ford's threadbare finances mean there's less money to invest in new car platforms and to add features to existing models. Moreover, Ford's track record in car design has been mixed; models that have sold poorly in recent years include the Thunderbird and Five Hundred sedan—both highly heralded vehicles that were supposed to help spark a sales revival. Ford's luxury brands, Jaguar and Land Rover, have also suffered sharp sales declines, and Ford is now mulling a sale of those nameplates to raise cash. If Ford can't come up with a way to staunch its sales declines, the Way Forward may just lead the company a step closer to bankruptcy.

—Daren Fonda