Ford, Toyota May Team Up on Advanced Engine Technologies, Manufacturing: ; Source Characterizes Talks Between Companies As Being Preliminary

Ford Motor Co.'s new CEO, Alan Mulally, has called himself "a disciple of the Toyota production system." Last week, he flew to Tokyo to meet with Toyota Motor Corp. Chairman Fujio Cho to discuss ways the two companies could work together on advanced engine technologies and other issues.

A source familiar with the talks characterized them as "preliminary" and limited to possible collaborations, downplaying speculation about a deeper alliance that swirled after news of the meeting broke in Japan. In addition to discussing technologies such as hybrid-electric and hydrogen powertrains, the executives discussed ways the companies might work together on manufacturing and environmental issues.

"At this point, it's just a discussion," the source said.

Mulally was accompanied by Ford Americas President Mark Fields. Other top Toyota executives also participated in the discussion, held Wednesday. Mulally and Fields flew back to the United States the following day.

Ford would not officially confirm that the meeting had taken place. It issued a statement late Tuesday that said simply: "We meet regularly with other automakers on a variety of topics of mutual interest."

Toyota officials in Japan had no immediate comment.

Wall Street reacted cautiously.

"If they were talking about a merger or an alliance, that would get everyone really excited," said Bradley Rubin, an analyst with BNP Paribas. "But that's not going to happen."

Mulally is an avowed Toyota admirer who drove a Toyota-product Lexus until he was tapped to lead Ford in September. The former Boeing Co. executive has made it clear he looks to the Japanese automaker for inspiration.

"The Toyota production system is the finest production system in the world," he said in a recent interview with The Detroit News. "They're a magical machine. It's the machine that changed the world.

"The best in the world is Toyota."

Mulally has a longstanding relationship with the Japanese automaker and visited Toyota's facilities in Japan more than once while at Boeing.

Ford and Toyota have met regularly for years, according to sources at Ford headquarters, and possible collaborations have been discussed in the past. Ford has exchanged hybrid technology with Toyota, but little else has come of these meetings.

However, the talks could progress further now because of Mulally's interest in Toyota and his appreciation of the Toyota production system.

Such a partnership would not be without precedent. Ford has a number of collaborations with other automobile manufacturers. Its new six-speed automatic transmission is the product of a partnership with rival General Motors Corp., and the Dearborn, Mich.-based automaker has an ongoing joint venture with France's PSA Peugeot Citro n that produces diesel engines for the European market.

Mulally's meeting with Cho comes as Ford struggles to revive its faltering auto operations.

The company lost $7 billion during the first nine months of the year and does not expect to return to profitability until 2009 after closing 14 factories and cutting tens of thousands of jobs.

Ten years ago, Ford made one of every four cars and trucks sold in America. Now, the company's U.S. market share has dropped to 17.6 percent, compared to 15.3 percent for Toyota. Toyota is almost certain to pass Ford to claim the No. 2 slot, while Ford hopes to stabilize its share at between 14 percent and 15 percent.

With a market valuation approaching $230 billion, Toyota could purchase Ford and have plenty of money left over to buy GM, too. But the Japanese automaker has been reluctant historically to acquire other automakers, and Toyota continues to hold that line, although it owns stakes in a wide range of firms, including several of its own leading suppliers.

But Toyota does have a number of cooperative agreements and ventures with other carmakers, including New United Motor Manufacturing Inc. _ a joint production venture with GM in Fremont, Calif., that dates to 1984. Toyota also conducts research jointly with GM and recently purchased a stake in Isuzu Motors and Fuji Heavy Industries, which GM sold to raise cash.

While Toyota denied that it was acting to help GM, its top executives are acutely aware of U.S. automakers' struggles in the domestic market, which is the biggest source of profit for Toyota. Toyota is building factories in North America, including a newly opened truck plant in Texas, to increase local output of vehicles for the U.S. market and quell any protectionist backlash.

Japanese media have speculated that the automaker might pursue a partnership with Ford to further bolster its image with American consumers.

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