Bill Pierre Ford

DEARBORN, Mich. — Inside the Ford Motor Company, it was called Project M — to build a prototype of a totally electric, battery-powered car in just six months.

When it was started last summer, the effort was considered a tall order by the small team of executives and engineers assigned to it. After all, the auto industry can take years to develop vehicles.

But Ford was feeling pressure from competitors, and decided it could not afford to fall behind in the rapidly expanding race to put electric cars in dealer showrooms.

“Frankly, I think it’s a gamble not to do it,” William C. Ford Jr., the company’s executive chairman, said in an interview. “It’s clear that society is headed down this road.”

Certainly, Ford and other carmakers are betting billions of dollars on this new direction, at a time when they can ill afford it and when Detroit is facing government scrutiny after the $17.4 billion bailout of G.M. and Chrysler.

Throughout the cavernous Detroit auto show hall, typically the high temple of brute horsepower, auto companies will be competing this week to establish their green and electric credentials. On Sunday, when the show opens, Ford will announce plans for its electric vehicle, including a goal to start selling them by 2011.

These are risky bets. There are no guarantees that consumers — for all their stated concerns about global warming, dependence on foreign oil and unpredictable gas prices — will buy enough of them. They may balk, for example, at the limits on how far they can drive on a single charge.

But the companies could get some help from President-elect Barack Obama. He has said he is committed to promoting cleaner cars, and may propose incentives to encourage consumers and businesses to buy them.

Ford plans to make only 10,000 of the electric vehicles a year at first — very few by Detroit standards — to test the market cautiously.

Still, Mr. Obama’s interest, and the scope of projects by Ford and others, is convincing some environmentalists that the industry is serious about electric cars.

“I think the days of the gasoline engine are numbered, even if we don’t know exactly what that number is,” said Daniel Becker, head of the Safe Climate Campaign, which is part of the Center for Auto Safety consumer advocacy group in Washington.

The competition over electrics is picking up speed and players. Toyota, which has so far focused its efforts on hybrid models, will display a battery-powered concept car at the Detroit show. Nissan’s chief executive, Carlos Ghosn, has promised to sell an electric car in the United States and Japan as early as next year.

Two Japanese automakers, Mitsubishi and Fuji Heavy Industries, the parent company of Subaru, are also testing electric cars. And Chrysler, the most troubled of Detroit’s three auto companies, has vowed to produce its first electric car by 2010.

The surge toward electric vehicles also appears to be jump-starting investments in advanced-battery production in the United States. General Motors will announce plans at the auto show to build a factory in the United States to assemble advanced batteries for its Chevrolet Volt model, which it expects to start selling next year.

American auto executives have warned that without homegrown suppliers, the country could potentially become as dependent on Asian-made batteries as it is on oil from the Middle East and elsewhere.

“Automakers cannot afford the batteries until they are produced in a certain volume,” said Brett Smith, an industry analyst at the Center for Automotive Research in Ann Arbor, Mich. “But they can’t be produced in volume until companies make a big manufacturing investment.”

Strong consumer demand has to be part of that equation, too. And it remains unclear whether consumers will be comfortable with the idea of buying an electric car, or whether these vehicles will priced to compete with comparable gas-powered models.

Ford would not say what its electric car will cost. The Chevrolet Volt is expected to cost around $40,000.

“It’s the right time to take this step, but it would be presumptive to try and predict what the market is ultimately going to look like,” said Derrick M. Kuzak, Ford’s chief of global product development.

So far, consumers have proved to be fickle about how much they care about fuel economy. When gas prices soared above $4 a gallon last year, sales of the market-leading Prius hybrid surged so quickly that Toyota could not build them fast enough. But demand sagged when gas prices dropped below $2 a gallon.

Industry analysts also note that electric models could be a harder sell than hybrids, which have a gasoline engine to assist and recharge battery packs, freeing them from the need to be plugged in.

Most of the prospective electric models need to be charged for several hours to cover a day’s worth of driving. Ford estimates that its car will need at least a six-hour charge to travel 100 miles. The Volt can get 40 miles on battery power alone, and it has a small gasoline engine that drives a generator to extend its range.

For decades, Henry Ford’s company was the world’s No. 2 automaker, a strong runner-up to General Motors and a pillar of American corporate stability. In early 2009, it emerged as the sole American automaker in a position to survive the steepest sales downturn in decades without a government bailout.

The company had been through rough patches before, recovering in the 1950’s from the neglect of its founder’s later years, and fighting in the 1970s and early ’80s to fend off waves of Japanese imports.

The 1990’s were, at first glance, a good time for Ford, as its Taurus was the dominant passenger car of the decade’s early years and sales of its high-margin sport-utility vehicles, minivans and trucks rose and rose. In 1999, the first year under its new chairman, William Clay Ford Jr., and new chief executive Jacques A. Nasser, Ford earned a profit of $7.2 billion. That same year, Ford bought Volvo, adding it to a stable of European brands that included Aston Martin and Jaguar. In 2000, it bought Land Rover and formed the Premier Automotive Group, which it hoped could expand its profits and worldwide sales.

The Troubles Begin

That same year Ford was hit by exploding Firestone tires on its Ford Explorer, which had been the most popular sport utility in the country. For more than a year, Ford traded angry accusations with Firestone over who was at fault for the problem. The situation helped oust Mr. Nasser, who had angered Ford employees with aggressive steps he argued were needed to change the company, and it began a downturn from which Ford has yet to recover.

In 2006 Toyota passed Ford in United States sales. Lower sales and declining margins combined with rising spending on health care and retirees drove all American carmakers into a corner, but perhaps Ford most of all. It reported losing a staggering $12.6 billion. At the start of the year, Ford had announced a restructuring plan involving shedding 30,000 hourly jobs and 14,000 salaried workers, about one-third of its labor force; later that year it raised $23 billion by putting many of its most cherished North American assets up as collateral, including the Ford logo.

In July 2007 it announced that it had earned a profit of $750 million in the second quarter, its first quarterly profit in more than two years. Still, its new chief executive, Alan R. Mulally, brought in from Boeing in late 2006, warned of “substantial losses” looming for the year’s second half, and confirmed that the company was negotiating with possible buyers of Jaguar and Land Rover and was considering selling Volvo as well.

The Losses Mount

In October 2008, a dire new forecast for global vehicle sales battered the shares of auto companies. On Jan. 29, 2009, Ford announced that it lost $14.6 billion in the previous year, making 2008 its worst year in history as a result of the biggest sales slump in decades. Ford maintained that it had enough funds for its business plan and product investments. It finished 2008 with $24 billion in cash on hand but $25.8 billion in debt.

Ford, which is the only American automaker not being propped up by billions of dollars in government loans, said it did not need federal aid unless the economy worsened significantly or a competitor filed for bankruptcy protection. It expects to break even or earn a profit, excluding one-time charges, by 2011.

Working With the Union

The Ford Motor Company can substitute its stock for as much as half of its payments into a retiree health care trust under a deal announced Feb. 23, 2009, by the automaker and the United Automobile Workers union.

The agreement could form the basis for similar deals with General Motors and Chrysler, which need to cut costs and demonstrate that they can survive under the terms of their loans from the federal government.

“The modifications will protect jobs for U.A.W. members by ensuring the long-term viability of the company,” the union’s president, Ron Gettelfinger, said in a statement.

On March 9, the U.A.W. announced that its members at Ford had approved the agreement.The changes also require court approval.

On March 3, 2009, Ford said that its February sales were 48 percent lower than in February 2008. The company also said it would reduce second-quarter production by 38 percent from the same period in 2008.

Revamping Its Balance Sheet

On March 4, Ford said that it hoped to eliminate as much as $10.4 billion in debt by giving cash and stock to debt holders as part of a revamping of its balance sheet.

The moves Ford announced were similar to what General Motors and Chrysler were required to do under their multibillion-dollar loans from the federal government. As a result, Ford would reduce its overall borrowing by 40 percent.

In a reflection of the financial stress on the auto industry, Ford is offering its bondholders far less than the debt was originally worth. But under the terms it is proposing, holders of its debt would still fare better than they would if they sold their debt for its current market value.

G.M. and Chrysler bondholders have been forced to take such losses, but until now Ford bondholders have resisted similar actions. Ford, which has not taken any bailout money, has had more success initiating its restructuring than G.M. and Chrysler have achieved under government edict.

Analysts said that Ford’s debt initiatives, and the earlier agreement it secured with the United Automobile Workers union, reinforce its status as the healthiest of Detroit’s automakers. Ford said it would put up $2.2 billion in cash, including $1.8 billion from its lending arm, Ford Motor Credit, and 500 million shares of stock to persuade bondholders and other creditors to accept its restructuring offer.

Ford said that of its $25.8 billion in outstanding debt at the end of 2008, $20.7 billion is eligible to be restructured.