(FORTUNE Magazine) – ON THIS UNSEASONABLY warm November afternoon, sunlight filters through the windows of Ford Motor Co. Chairman Donald Petersen's office, igniting a collection of aquamarines, rubies, topazes, and other gems and minerals locked in a glass case. The stones, which Petersen collects as a hobby, aren't the only things sparkling in Dearborn these days: Take a look at Petersen's smile. After losing over $3 billion in the early 1980s, Ford has become the comeback story of the decade, the world's most profitable car company -- and more. It provides a model for how to transform a struggling also-ran into a world- beater. In its home market, Ford is humiliating its biggest rival. Since 1980 Ford's market share has risen by three percentage points to 20%, while GM's has shrunk nine points to 37%. Ford has captured U.S. leadership in styling and reputation for quality. Last year Ford passed the General in profits for the first time since 1924, earning $3.3 billion vs. GM's $2.9 billion. In the first nine months of this year, Ford made more money than GM and Chrysler combined. Lately the mild-mannered Petersen even allows himself some modest speculation about overtaking GM in sales. ''If you look at where we are now,'' he says, ''it's where they were just a few years ago.'' It's true. Ford's 1986 sales were the same as GM's sales in 1981. Petersen transformed Ford by radically reshaping one of the most autocratic and politicized corporate cultures in the U.S. Picture the opposite of Henry Ford II, Lee Iacocca, and a host of other egotistical managers who once starred at Ford, and you get the man who could be Detroit's first Japanese- style chief executive. He lives and breathes participative management, taking to heart suggestions from vice presidents and assembly workers. Most remarkably, he subordinates his ego to the needs of the company. Asked how he turned Ford around, Petersen becomes emphatic as he calls up the names of former chairman Philip Caldwell, vice chairman Red Poling, and others. Says he: ''I want you to remember one thing. The credit here goes to my team, not me.'' Born in 1926 on a farm in Pipestone, Minnesota, Petersen moved to California when he was 2. His Danish father had been a wheat farmer but chose the drier climate of the West for his asthma. Soon after the family's arrival, the Depression hit, and Petersen senior drifted from job to job, at one point selling real estate. Little in Petersen's past pointed to a future at Ford, though there were some odd premonitory signs. After hearing a Ford jingle on the radio, his parents taught the 3-year-old Donald to recite the virtues of the 1929 Model A to friends and relatives. And the young Californian was inexplicably a Detroit Tigers fan. AFTER SERVING in the Marines during World War II, Petersen got his MBA at Stanford and then, egged on by a Ford campus recruiter, traveled to Dearborn for an interview. Petersen missed his bus stop, and the driver dropped him by the side of the highway. Undaunted, he hurled his suitcase and then himself over a fence and walked to the Ford administration building. Says he: ''I was dusty, but they liked me.'' Ford hired Petersen at $300 a month, one of the highest salaries paid to a Stanford business school graduate that year. He immediately became a product planner, a kind of conductor who orchestrated Ford's future cars by coordinating design, engineering, and finance. In the Fifties he worked on the legendary Thunderbird team, and in the Sixties he helped develop the Mustang and the LTD. But Petersen grew to despise the atmosphere at Ford, where fear and envy reigned. He recalls: ''Those days built into me a strong desire to see things work differently, a strong desire to stop all the fighting, backbiting, and working to prove the other guy is wrong'' -- so strong that Petersen twice quit briefly, despairing over bosses who were more worried about office politics than building good cars. SHUNNING POLITICS did not keep Petersen from rising steadily through the ranks. From every assignment he would take a glowing evaluation and a big promotion. In the late 1970s, Petersen was named head of Ford's international automotive operations, an acknowledged steppingstone to the presidency. A man who knows cars and loves to drive them, he tried to sell Dearborn on the agility, clean designs, and quality construction of European makes but instead became pegged as an eccentric. It was not until the early 1980s that the growing Japanese and European share of the U.S. market made clear even in Dearborn that Petersen had correctly anticipated changing American tastes. When Henry Ford II retired as chairman in 1980, Philip Caldwell became chairman and Petersen president. The two geared up for one of the most dramatic restructuring programs in industrial history. Its major components: a $3 billion gamble on a make-or-break new line of cars, fierce cost cutting, and an unprecedented drive to push responsibility down into the ranks of workers. Progress was slow at first, but Petersen eventually got the warring fiefdoms within Ford to cooperate. He met almost endlessly with managers, beginning each meeting with a sermon on teamwork and quality. He also visited factories to hear what workers had to say and to persuade them that Ford would actually adopt good ideas that trickled up from the rank and file. Says Caldwell, now a senior managing director at Shearson Lehman Brothers: ''We stopped shipping products if an employee on the floor said they weren't right, and we stopped penalizing people if they didn't make their quotas because of worries about quality. That was a radical departure for Ford.'' Why was Ford able to pull off such a dramatic change in culture when GM, which had pioneered worker participation years earlier, could not? Ford was on the ropes, so it had leverage over its employees. In the early Eighties the company started cutting 50,000 of its 380,000 jobs worldwide; the unspoken message was cooperate or else. And, ironically, Ford's hierarchical culture helped Petersen push the teamwork gospel rapidly through the entire organization. PETERSEN STILL elicits team spirit by getting his managers deeply involved in decision-making. Like a professor holding a tutorial, he dissects and analyzes every idea before he accepts or dismisses it. ''If he feels someone has a closed mind,'' says Ford executive James Donaldson, ''he can have a hell of a powerful flame thrower.'' Though the company he heads these days looks as if it could do no wrong, Petersen keeps pushing himself to make it better. He gets up at six each morning and drives from his Bloomfield Hills condo to Ford headquarters, where he works out on his exercise bike, showers, dresses, breakfasts, and is at his desk by 7:30. Normally he doesn't arrive home until seven at night and even then is armed with two briefcases of work. KEEPING PETERSEN in overdrive is the auto industry's shaky outlook. Financial analysts expect carmakers to be whiplashed by overcapacity. By 1990, Ford figures, there will be only three buyers for every four cars and trucks that manufacturers will be able to supply in the U.S. Although Ford is best equipped among the Big Three to ride such a rough road, Paine Webber auto analyst Ann Knight sees Ford's 1988 profits dipping more than 20%. Ford stock has dropped from $93 before the market crash to $75 a share, an anemic four times 1987 earnings. Petersen is sitting on $9.1 billion in cash that he hopes to use as a buffer against hard times. He will use some of the money to acquire companies that & can bolster Ford's financial services, electronics, and aerospace divisions. Some is going for stock buybacks; in November he announced a $2 billion repurchase program. Petersen wants to integrate Ford globally around what he calls centers of excellence. The idea is to let each Ford operating group around the world do what it does best. Ford of Europe, for instance, is designing a chassis and body for a new line of compact-size cars to be manufactured around the mid- 1990s in Europe and North America. Duplication of design work is reduced and so are costs. But getting engineers in such a huge global company to cooperate won't be easy. Different markets have different needs; a car designed for the high-speed requirements of the German Autobahn, for instance, isn't necessarily right for the U.S. The one odd note for a man who professes to be a global thinker is Petersen's Asia-bashing. He not only argues that Japanese-car quotas should be cut by 600,000, to around 1.7 million a year, but also would like the U.S. to get tough with Korea. He insists that his only goal is to cut the U.S. trade deficit. But there are far better ways to do that than through crude protectionist measures. Ford's biggest risk is that it may become complacent with success, as GM did in the early Eighties. No one knows this better than Petersen. Says he: ''The principle by which we will live and die is that once we can do something well, we have to figure out how to do it even better.''