Ford is hitting on all cylinders

Even as industry-wide auto vehicle production remains in a bad slump—running at 12 million units annually, down from a peak of 17 million earlier this decade—Ford is reaping the benefits of a turnaround plan from Chief Executive Alan Mulally. He has moved faster than most observers expected to boost quality and simplify the product lineup, and investors could reap the rewards for years to come.

Strong Contender

The stock already has soared from $1.58 in February 2009 to around $13. "Ford is in a very strong position," says David Cole, who heads the Center for Automotive Research in Ann Arbor, Mich. "It has brought costs way down, has a well-integrated global platform, an excellent and still-growing market share and, most important, a really good product lineup."

Mr. Mulally, in a recent interview, suggested that profit is headed higher, even though this year's second half probably won't be as good as the first because of charges linked to the shutdown of the Mercury. And, he insists, Ford will have more cash than debt by the end of 2011.

Ford's lineup now is slimmer and more focused. Aston Martin, Land Rover and Jaguar are gone, Mercury will be out after Dec. 31, and Ford announced last week that it has a buyer for Volvo.

Still, the Dearborn, Mich.-based Ford reaches a broad swath of potential car buyers. Ford's vehicles range from the behemoth F350 Super Duty pickup to the midsize Fusion (Motor Trend's 2010 Car of the Year) and all the way down to the hot-selling Fiesta, which has been a hit in Europe.

Ford's improved quality—Consumer Reports rates it the equal of the best Japanese vehicles—has cut warranty costs, boosted its vehicles' resale values and helped it supplant Toyota as the strongest auto brand in the U.S.

Hybrid Lincoln This Year

Last month, Ford unveiled the 2011 Explorer, now a car-based crossover, rather than a truck-based sport-utility vehicle. And the company is introducing a Lincoln MKZ hybrid sedan this fall.

Ford has challenges, especially in China where its sales still badly trail those of GM and Volkswagen. Nonetheless, Mr. Mulally's plan is working. Selling at just 6.5 times analysts' estimates for 2010 earnings per share, the stock looks unquestionably cheap.