Jeff Kowalsky/Bloomberg/Getty Images

Shares of Ford Motor Co.

neared $20 before falling back to 16 as it posted $6.6 billion in earnings for 2010. Just two years ago, Ford's stock was trading at two bucks and the company was bleeding cash. The Chevy Volt earned North American Car of the Year, and parent company General Motors' market share is actually higher after exiting bankruptcy and closing four brands. Even Chrysler, the other Detroit company that almost failed, is making an operating profit, showing vastly improved products coming out of its marriage to Fiat and gearing up for its own stock offering later this year.

Is Detroit really roaring back? Are happy days here again? Will the streets of Detroit soon be paved with gold instead of lined with abandoned buildings?

"There is very clearly a momentum shift here," says James Farley, chief marketer at Ford Motor Co., whose perspective is worth considering. Born in Detroit, Farley spent more than 20 years at Toyota before arriving at Ford at the end of 2007. At the recent North American International Auto Show in Detroit, Farley was more than upbeat. "Look around here … the excitement is around the product from us, GM and Chrysler."

While Ford has roared back without the benefit of going through a financial car-wash of bankruptcy, that process liberated GM and Chrysler from billions of burdensome retiree and healthcare costs. The companies can now—reportedly—make a profit in a vastly smaller U.S. car market. The companies only need the industry to sell about 10.5 million vehicles in the U.S. to cover their fixed costs. With sales widely expected to crest 13 million this year, and 13.5 million next year, that's a lot of additional sales through which to book big profits.

But despite the optimistic projections, are the Big Three really out of the woods? Challenges remain in the form of higher raw-material costs prices, and increased competition from established players and the aggressive Korean automakers. The road ahead is smoother and straighter than it was, but it is hardly clear. More specifically, what obstacles do the Big Three face in the coming years and are they properly positioned to remain strong? In a special PM investigation, we delved into each of the Big Three to find out what they're doing right and the possible road blocks. Call it the PM auto-company report card.

Ford

The Pros:

This Dearborn automaker's prospects look excellent. Even in a year when auto sales were a mere 12.3 million, Ford posted earnings of $6.6 billion for all of 2010, its best performance in 11 years. Ford's shares quadrupled in 2009, and rose 68 percent in 2010. And it passed Toyota as the No. 2 vehicle seller in the U.S.

Consumer Reports has essentially said there is no quality gap between Toyota and Ford, with Ford poised to take the lead. Moreover, compare the quality and aesthetic appeal of Ford's interiors today versus Toyota's and it's no contest who is doing it better.

"Ford's challenge is keeping it up," said Jessica Caldwell, director of pricing and industry analysis for the auto buying site Edmunds.com. "When you're the underdog, it's easy to do well. Now they're seen as the leader and everyone is going after them."

The Questions:

Ford is making a big bet on a flurry of new cars—the 2011 Fiesta, an all-new Focus, the Grand C-Max, and a Focus-based Lincoln. Meantime, the new Ford Taurus, Ford Flex and Lincoln MKT and Lincoln MKS have not been sales successes.

The Bottom Line:

Ford CEO Alan Mulally may be the best auto exec since Alfred Sloan. Why? He did nothing short of reinvent Ford, but more importantly got the whole company to focus on long-term goals, not quarterly ones. He is a master of organizational discipline and motivation. Ford's fixed costs keep coming down, while product quality keeps going up. He is aggressively reducing Ford's debt. Look for Ford and the UAW to find creative profit-sharing paths, not a return to the bad old days when workers got paid for staring at their navels.





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Jeff Kowalsky/Jin Lee/Bloomberg/Getty Images

Jeff Kowalsky/Jin Lee/Bloomberg/Getty Images

General Motors (GM)

The Pros:

The world's second-largest producer of cars and trucks releases 2010 financial results on Feb. 9 and is expected to post healthy earnings. GM not only increased market share in 2010, it sold more vehicles in China last year than it did in the U.S., a first in the company's 102-year history. That means GM is now doing well in the two biggest, most important markets in the world.

General Motors raised $20.1 billion in the biggest IPO ever last November, and used about $11.8 billion of the proceeds to make a nice dent in its $50 billion tab to the U.S. Treasury. The government's stake has been reduced to about 37 percent, down from 61 percent, and that could soon fall to 33 percent.

GM's truck business is not only sound as ever, the company is also now rocking and rolling in the small car and crossover categories. The Chevy Cruze is pound-for-pound as good or better than the Honda Civic and the aging Toyota Corolla. Other surging GM models include Chevy Equinox, Buick LaCrosse, and Cadillac CTS Coupe. Even the new Buick Verano is being praised by, dare we say it, young people.

The Questions:

Is GM management really fixed? CEO Daniel Akerson is not experienced in the auto industry. He doesn't communicate much either, which is not a good attribute for an auto company CEO. GM North American chief Mark Reuss is a solid executive with maverick ideas about product. Marketing chief Joel Ewanick has a track record for top-drawer ideas. But will Akerson, a telecommunications executive and private equity financial hawk, give the "car people" room to run? There are signs that there is still "Old GM" left in the middle ranks. Harvard Business School financial types that held sway in the 1990s and early 2000s and bean counted the cars to mediocrity still loom, and have more influence now than when now-retired GM vice chairman Bob Lutz was there to put them in their place.

Wall Street believes that government ownership still hangs a cloud over GM. Akerson is anxious to shed government ownership in order to rid that perception, as well as to pay executives what he wants without it being subject to White House review.

Like Ford, GM is laying plans to get creative with the new UAW President. Big healthcare givebacks are not likely. Look for GM to negotiate hard for profit sharing arrangements and more jobs, even if they don't pay as much as the old ones did.

The Bottom Line:

GM's management does not yet look as strong as either Ford's or Chrysler's. But it is heading in the right direction. Products that came out of the Bob Lutz era continue to look good. But future products will be under close scrutiny as GM has just named Mary Barra, a relatively unknown and unproven executive, to succeed the legendary Lutz and Tom Stevens as head of product development. Stumbles in new products better be few, or GM's momentum will retreat.

Chrysler

The Pros:

In many ways the old Chrysler is back. There were more doubters than believers in the Fall of 2009 when Fiat took control of Chrysler, but the proof is in a rapidly improving product line.

Sergio Marchionne is one of the strongest CEOs in the world. A lawyer with a finance background is usually a fatal resumé for an auto industry CEO, but Marchionne runs on gasoline as he manages both Chrysler and Fiat. In 18 months, he has hammered Chrysler's fixed costs down to where the company is making a healthy operating profit and conserving its cash while it pays back debt. At the same time, his team largely fixed almost the entire Chrysler lineup of the embarrassing quality and fit and finish problems that came out of the era of Daimler and Cerberus Capital Management ownership.

There is an air of competence and quality permeating the new Chrysler. The new Jeep Grand Cherokee and Dodge Durango are class leading. The Chrysler minivan has been upgraded to legitimately rival redesigns of the Honda Odyssey and Toyota Sienna. The Chrysler 300 redesign is top-drawer. Highly respectable redesigns of the interiors and upgrades to exterior designs of the Dodge Charger, Jeep Compass, Chrysler Sebring shows that the Fiat-Chrysler marriage will produce far smarter and better-looking children than the previous marriage with Daimler, and the dysfunctional living arrangement the automaker had with Cerberus. Even the re-launch of the Fiat brand with the 500 this year, and the subsequent release of Alfa Romeos starting in 2012, looks strong and sound.

The Questions:

How long will it take for buyers to trust that Chrysler has addressed the quality problems? Will Consumer Reports and J.D. Power back up Marchionne's rhetoric about how much better the product is now? Will the new generation of engineering platforms crafted by Fiat and Chrysler engineers off Fiat platforms be of high quality? Can Chrysler take the energy in its much improved TV ads and translate it to social and digital media where the action really is?

The Bottom Line:

Chrysler has the furthest road to respectability, but management knows that. Engineers and designers have been working at breakneck pace since the late summer of 2009 to release the current, much improved vehicles and to ready the first wave of all-new cars to come from the Fiat-Chrysler alliance. Marchionne and his top team appear to be exceptional managers, with more of the right mix of financial discipline and creative savvy than any previous regime.

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