(MONEY Magazine) – By at least one measure--share price--Ford Motor has had a blockbuster year. The entire automotive sector is on a winning streak, up 45% over the past 12 months vs. 25% for the S&P 500. But Ford is up 55%. That's all the more remarkable when you consider that as recently as early 2003, one analyst predicted that Ford was on its way to bankruptcy.

CEO Bill Ford Jr., who took over in late 2001, has certainly had plenty to fix at the company his great-grandfather built. He inherited a portfolio of failed new business ventures (e-commerce and repair shops), an underdeveloped production system (Ford needs 35% more labor hours than its best rivals to assemble each vehicle) and the aftermath of the 2001 recall of 13 million Firestone tires. After a gargantuan $5.5 billion loss in 2001, Bill Ford committed to a turnaround plan that would dramatically cut costs.

The stock is up because that plan seems to be working. Excluding one-time special items, Ford's income from continuing operations doubled in 2003; costs fell $3.2 billion. And the revamped F-150 pickups, which account for 25% of Ford's U.S. revenue, have broken company sales records. The high-priced--and high-margin--FX4 and Lariat F-150 models were 60% of those sales. Plus, a booming stock market helped narrow the funding gap for Ford's pension plan from $15 billion to $2 billion.

Optimists may recall that the last time this firm engineered a comeback, in the early '90s, it was a big one. By 1999, Ford was the most profitable car maker on the planet, with $7 billion in earnings, and traded at a high (adjusted for a 2000 recapitalization) of $37.

THE TROUBLE WITH TRUCKS

Unfortunately, Ford's latest turnaround probably won't have nearly as much oomph. In the 1990s the automaker was on the cutting edge of an industrywide revolution: the rising popularity of light trucks such as pickups and SUVs. For nearly a decade, Ford dominated this highly lucrative market. (Light trucks are much more profitable than ordinary cars.) But now the field is looking crowded, with both GM and Japanese rivals quickly getting up to speed. "The new Ford truck has a 5.4-liter V8 engine and four-speed transmission, but so what? Nissan's truck has 5.6 liters and a five-speed transmission," says Jim Hossack, an industry consultant at AutoPacific.

Across the board, Japanese manufacturers have been gradually but steadily nibbling away at Ford's market share. (Toyota recently knocked Ford from its position as the No. 2 automaker.) Collectively, U.S. automakers lost 2.8 percentage points of market share last year in the trucks segment, which accounts for some 65% of Ford's auto sales.

Ford CFO Don Leclair admits that he is worried about Japanese competition. "Of course we're concerned," he says. "This is our bread and butter." Auto analyst Stephen Girsky at Morgan Stanley calculates that every point of market share Ford loses costs the company about a billion dollars in profit. This means that in 2004 there's little room for Ford to scale back its incentives program, which has propped up its market share at the cost of eroding its operating margins.

Most analysts agree that Ford will need to have not one but many successful new product launches just to slow, let alone reverse, this trend. But Ford's manufacturing system is still a step behind: Only 14% of its U.S. factories have been upgraded to so-called flex systems--which allow a plant to quickly switch from one model to another--compared with about half of GM's. That makes it tougher to roll out new, hot products. "At this point, Ford's product portfolio lags behind GM's and Chrysler's," says analyst Kevin Tynan of independent stock research firm Argus Research. Though Ford says it plans to roll out 40 new models in 2004, most of the key upgrades, such as the redesigned Mustang and the new Ford 500 sedan, don't hit showrooms until late in the year.

Another troubling fact: Despite the increase in overall sales in 2003, the auto division still lost $4 million in the fourth quarter and barely squeaked out a profit for the year. Ford's earnings have been boosted by its credit operations, but an interest-rate hike would jeopardize some of those earnings. "Ford still has not proved they can make money in the car business," says Morgan Stanley's Girsky.

After its run-up, Ford trades at 12 times estimated 2004 earnings, a big discount to the S&P 500's P/E of 21. Still, investors should be wary. Ford's crisis is over, but with numerous obstacles ahead and no magic SUV to vault it over the roadblocks, it's not as cheap as it looks. --CYBELE WEISSER