Ford's (F) Alan Mulally believes that the U.S. automaker stands to gain more market share in the U.S. at the expense of Japan's Toyota, which is in the midst of a huge product recall and public relations nightmare. Mulally's statement sounds pretty obvious, but it's true. It's already happening.

This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that may eventually succeed them.

This may be perhaps the most surprising article in this series as few investors realize how huge Toyota Motors (NYSE: TM) is, especially when compared to Ford Motors (NYSE: F). Toyota sports a stock market valuation of $168 billion, 12 times the size of Ford's market cap of $13 billion. In fact, an even more surprising statistic: Toyota is 8 times larger than Ford and General Motors (NYSE: GM) combined!

Toyota has recently surpassed GM in annual unit sales of cars and trucks. Toyota sold over 9.3 million units in 2007 and has 16% market share in the United States. In spite of the difficult environment that all auto makers are facing with the economic slowdown, Toyota is poised for future growth with its cutting-edge line-up of hybrid autos and trucks. But, not too far behind Toyota is Ford. The company has perhaps a much brighter future than its main U.S. competitor GM. Ford has taken the necessary steps these past 21 months under the leadership of CEO Alan Mullaly. He was the president and CEO of Boeing's (NYSE: BA) commercial plane division.

Mullaly brings experience to Ford, but more importantly, he has a fresh approach and ideas from the aerospace industry. He has quickly retooled Ford by closing unproductive plants and expanding manufacturing in expense-friendly nations such as Mexico. Mullaly embraced hybrid technology and has positioned Ford as the American hybrid alternative to Toyota.

The CEO of Ford (NYSE:F) may be the last to know. An economic downturn is likely to hurt car sales. The company stock is near a 20-year low. But Alan Mulally elected to state the obvious. "For us, any slowdown in the economy -- the housing industry, financing of vehicles, tightening of credit, housing starts -- it puts a lot of pressure on consumer confidence to buy big-ticket items," he told Reuters.

What Mr. Mulally did not say is that cutting production may not be enough to save Ford. With its shares near $6, it trades where it did about two years ago when there were rumors that the company might go bankrupt.

Ford may not have enough capital on hand to handle a sharp and prolonged recession in the US. Its market share is already down to about 15%, and there is no guarantee that Japanese competitors will show it any mercy.

While Ford is not likely to see protection from the courts, it may have to raise additional capital to cover losses. If so, the dilution could take the company's shares down much further.

Perhaps that is Mulally's real concern.

Douglas A. McIntyre is an editor at 247wallst.com.

In Monday morning news that had me scratching my groggy head, BusinessWeek reports that fired Home Depot Inc. (NYSE: HD) CEO -- and General Electric Co. (NYSE: GE) alum -- Bob Nardelli is in charge of fixing Chrysler. If someone can explain to me why this makes sense, I would like to hear it.

That's because during his tenure as CEO, Nardelli systematically destroyed Home Depot's greatest strengths -- its expert sales staff and ability to supply products that customers needed in the stores. Moreover, he has no experience in the automobile industry, which depends heavily for its success on developing cars that consumers want to buy at a price they can afford.

Nardelli is not the first manager from outside the auto industry to be parachuted in to save the day. Consider Alan Mullaly, who was passed over for CEO of Boeing Company (NYSE: BA) for another GE alum, James McNerney. Mullaly took over at Ford Motor Co. (NYSE: F) in September 2006.

Ford Motor Co. (NYSE:F) actually made money in the second quarter, shocking Wall Street which had expected a loss. The automaker also confirmed media reports that may sell its Jaguar and Land Rover businesses.

The company made $750 million, or 31 cents per share, compared with a loss of $317 million, or 17 cents, a year earlier, its first profitable quarter in more than two years. Revenue rose 6% to $44.2 million. Wall Street had expected Ford to lose 35 cents on revenue of $37.5 billion. Click here for the earnings release, here for the Wall Street Journal story, and here for the Bloomberg News story.

Though Ford Motor Co. (NYSE: F) is denying media reports that its Volvo unit is for sale, I doubt that the company will hold onto the Swedish automaker for much longer.

BMW AG (FRA: BMW) signaled earlier this year that it would consider buying a stake in Volvo though its interest has apparently cooled lately, according to the Wall Street Journal. The reasons for the German automaker's change of heart aren't clear. Odds are good that the companies couldn't come to terms.

If BMW won't pay Ford's price for Volvo, other public and private buyers will in the not-too-distant future.

Ford Chief Executive Alan Mullaly would be glad to sell Volvo or other assets such as Ford Motor Credit though he's probably playing his cards close to the vest to try and not appear too much like a distressed seller like DaimlerChrysler AG (NYSE: DCX) did with the Chrysler sale.

Shares of Ford have climbed almost 12 percent this year on expectations that Mullaly will bring the automaker kicking and screaming into the 21st century. If people let the former Boeing Co. (NYSE: BA) executive do his job, he'll do just that but it may take longer than people would like.

Ford Motor Co. (NYSE:F) posted fourth-quarter results that were even worse than Wall Street's already-low expectations. In fact, on an annual basis the loss was $12.7 billion, or $6.79 per share, the worst in the company's 103-year-history.

The company's net loss widened to $5.8 billion, or $3.05 per share, from $74 million, or 4 cents, a year earlier, according to a press release. Revenue fell to $40.3 billion from $46.3 billion. Excluding one-time items, the loss was $2.1 billion, or $1.10. The results were worse than the $1.01 loss Wall Street analysts had expected though revenue came in ahead of the expectations of $34.67 billion.

The picture in North America was particularly ugly. The company posted a pre-tax loss of more than $2.8 billion in the quarter and $6.1 billion for the year. Sales plunged to $15.1 billion from $24.1 billion in the quarter. On a yearly basis, they plummeted to $69.4 billion versus $80.6 billion.

Investors weren't pleased with the results. They sent Ford's stock tumbling 10 cents to $8.10 in pre-market trading,

Under Chief Executive Alan Mullaly, Ford is cutting auto production and jobs to make the company more competitive. He doesn't mince words about the automaker's problems. Whether investors give him a chance remains to be seen.

Ford Motor Co. (NYSE:F) investors know that next week's fourth quarter results will be dreadful. The only question left is how bad.

Analysts are expecting the maker of the Escape and Mustang to post a loss of 97 cents on revenue of $34.67 billion on January 25, according to Thomson Financial. The bleeding is expected to continue this year, resulting in a loss of $1.52 per share.

How much patience is Wall Street going to give Chief Executive Alan Mullaly to turn the company around? Mullaly won high marks when he ran Boeing Co.'s (NYSE:BA) commercial aviation division. That's why Ford hired him in September.

James Brock, a professor of economics at Miami University in Ohio, told Bloomberg News in October, that "what people will be looking for is a sense that somebody is in charge, that there's a sense of credibility in that person.''

That's quite a tall order.

Ford, which expects to burn through $17 billion over the next three years, expects to return to profitability in 2009, according to the Wall Street Journal (subscription required). The company is slashing costs, cutting its work force and consolidating its dealer network.

During the recent analysts meeting, Mullaly said the company was ahead of schedule on its restructuring plan. Nonetheless, he sounded a cautious note, saying "Our No. 1 priority is to restructure ourselves in the near term," the Journal said.

Also check out some other earnings reports that we're following, and let us know your thoughts on earnings expectations.