An open letter to Ford president and CEO Alan Mulally

(Fortune) -- Dear Alan,

As you heard more than a few times on the earnings call yesterday, "nice quarter."

Ford (F, Fortune 500) reported net income of nearly $2.1 billion, nearly twice what analysts had forecast, and a huge swing from last year's loss.

Quality is up, and Ford has momentum. Those factoids -- about your biggest U.S. market share gains in 33 years, beating General Motors (GM, Fortune 500) in Canada, and beating Volkswagen in Europe -- were particularly impressive.

Success isn't going to your head, I know. Near the end of the call, you repeated for the nth time your themes for the direction for the company. They haven't changed in the three-and-a-half years you have been running Ford.

And Wall Street is already acting concerned. Following the old dictum of "sell on news," it knocked your stock price down nearly $1 a share Tuesday on fears of higher commodity prices and interest rates, and a slump in Europe.

But I worry about everybody else becoming complacent. More than most other companies (okay, not more than Chrysler), Ford has a history of high highs leading to low lows. It tends to exaggerate the swings of this cyclical industry by making bone-headed decisions and taking its collective eye off the ball.

Ford has had a hard time handling prosperity.

Since you are a student of Ford history, I am not telling you anything you don't know. But it might be worth reminding others about some of Ford's managerial mistakes from years past that came when the company was riding high.

• In 1955, Ford's profits in the first nine months exceed those of any previous full year in the company's history. Flush with cash, Ford starts work on a new division designed to strike at the heart of GM's successful mid-market brands. It is called Edsel.

• In 1964, Lee Iacocca launches the Mustang, and, in 1969, the ultra-profitable Continental Mark III. He also oversees the Pinto. It is later revealed that Ford decided not to make an $11 fix that would reduce the likelihood of fires from rear-end collisions because it would be cheaper to settle the lawsuits that resulted from those fires.

• In 1986, CEO Donald Petersen introduces the Taurus, which revolutionizes car design, and oversees development of the equally revolutionary Explorer. With the money rolling in, he tries unsuccessfully to buy Lockheed, but gets Jaguar and Aston Martin instead. The two British car companies remain persistent money-losers.

• The SUV and pickup truck boom of the 1990s makes Ford flush again, so CEO Jac Nasser gets out the company checkbook. He waves it at Nissan and then buys Volvo, Land Rover, and some other cats and dogs. After Nasser is forced out, his acquisitions are liquidated at fire-sale prices.

• Having accumulated a cash hoard of $24 billion in 2000, Ford revamps its ownership structure and pays a $10 billion special dividend, with a big chunk going to the Ford family. By 2006, the company is in dire straits again, and it is forced to borrow $23 billion.

Now that the auto industry is recovering and the money is flowing more freely, there will be a tendency to take it a bit easier. Memories are short. There will be fewer people working on Saturday mornings; less incentive to push quality or productivity to the next level.

Even more dangerous, there will be the temptation to expand through acquisition. Since you have been so successful with the Ford brand, why not extend that to others made in China or India? The opportunities for making mistakes are almost endless.

So Alan, now that you have reached the age of 64 and are grooming a successor, you should be thinking about your legacy at Ford.

Other CEOs have been as successful as you. Your unique contribution may be not in teaching how to turn around Ford, but in how to keep it turned around once you have done so.