Ford Motor's (F) upbeat earnings report Thursday showed the company's plan for turning itself around appears to be working. The automaker earned $2.7 billion last year, saw sales tick up 13% in the fourth quarter and reported U.S. market share rose last year to 15.3%, the first full-year gain since 1995.But the company isn't out of the woods yet. Ford still faces "significant business environment challenges ahead," said Chief Executive Alan Mulally. And the automaker remains burdened by substantial debt -- some $34 billion by its own accounting -- leading some to wonder how that might affect the company's competitiveness in an increasingly global car market.

"There is no question that our net debt levels give us a net disadvantage against our competitors," said Chief Financial Officer Lewis W.K. Booth. "We're acutely aware that we have too much debt on our balance sheet." Booth said the company worked hard last year to reduce its indebtedness through debt restructuring, a stock offering and other strategies. "We're going to continue to work on it," said Booth, though he declined to elaborate on any specific actions the company might take this year, saying only that "there's still a lot of work to do."

Toyota Down, Ford Up?

The single biggest thing Ford can do, of course, is sell more cars. And several factors may aid the Dearborn, Mich.-based company in doing just that. First, there is the goodwill Ford has generated among consumers in forgoing federal bailout money, unlike General Motors and Chrysler. Then there are Toyota Motor's (TM) recent -- and expanding -- recalls of millions of its cars due to a problem with unintended acceleration, along with its decision to temporarily halt sales and production of eight models, including Camry and Corolla sedans, some of the most popular cars sold in the U.S.

Mulally didn't go so far as to say that Ford would gain from Toyota's woes. But he did say that Toyota's decision to stop sales and production has created a void in the market that would likely spark more interest in Ford among consumers. "It's really an opportunity for our products to be viewed again," he said.

Both Ford and GM are offering $1,000 to customers who trade in 1995-2010 Toyota, Lexus, Scion, Honda or Acura vehicles.

Similar Accelerator Problems?

Mulally also addressed reports that Ford had halted production of a commercial vehicle in China after the gas pedal used in its manufacture was discovered to come from same supplier -- CTS Corp. (CTS) -- involved in Toyota's recall. Mulally described it as an isolated concern.

The affected vehicles are diesel versions of the Transit Classic commercial vehicle that Ford makes in China with one of its joint-venture partners, Jiangling Motors. "We have not determined whether we have a problem there yet," said Mulally, adding that the gas pedals appear to have been installed on fewer than 2,000 vehicles.

If Ford can manage its debt and avoid the quality pitfalls that have afflicted Toyota, the auto maker's has a shot at retaking the No. 2 spot in the U.S. market -- and there are few Americans who wouldn't like to see that.

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