Updated from 1:09 p.m. EST

In Ford's ( F) darkest days, any signs of light are still far in the distance.

On Thursday, the No. 2 U.S. automaker reported a $12.7 billion loss for 2006 -- the largest in its history -- as its market share continued to erode and its production levels were slashed. Moreover, the company said that 2007 likely will show more deterioration of operating results and restructuring charges will continue.

With losses as far as the eye can see, investing in Ford at this point amounts to a blind bet on its new CEO, Alan Mulally, and his ability to take the company's cash build-up and transform it into a new, profitable enterprise.

Shares of Ford were recently up 3 cents, or 0.5% to $8.23 as some investors viewed the massive losses as a sign that the worst is behind Ford, and the company's stock can now begin the same sort of rebound that its counterpart, General Motors ( GM) staged in 2006.

Shares of GM led the Dow Jones Industrial Average last year with a 60% jump. Ford's shares broke even for the year, as the company just managed to begin the turnaround process that GM executed.

"With losses this big and leverage this high, there's really no way to build any kind of fundamental case around Ford's shares now," says Morningstar analyst John Novak. "The stock is really like an out-of-the-money call option, and the strike price is the survival of the company."

Things really got underway at Ford when Mulally joined the company in October, replacing Bill Ford -- the great-grandson of the company's fabled founder, Henry Ford.

"Mulally is a fresh set of eyes with experience in turnarounds and tough labor negotiations," says Novak. "Most importantly, he's not connected with the Ford family and that whole legacy, so he'll be able to make some hard decisions that Bill Ford couldn't make or didn't want to make."

Mulally has Wall Street's support as he seeks to slash employment by a third and reinvigorate the company through a bolder product lineup. Recently, the company raised $3 billion in financing, in part by taking the unprecedented step of pledging nearly all its U.S. assets as collateral to lenders.

It ended the year with with total automotive cash, marketable securities, loaned securities and short-term Voluntary Employee Beneficiary Association, or VEBA, assets of $33.9 billion, up about $10 billion from the end of the third quarter.

"For the foreseeable future, the Ford story is less about quarterly earnings and more about liquidity, cash flow and restructuring," said Peter Nesvold, an analyst at Bear Stearns, in a research note.

Nesvold noted that Ford's fourth-quarter cash burn from its automotive operations was just $1.8 billion, better than the $3 billion he had expected.

"We remain strong supporters of senior management, though the aggregation of so many troublesome items in the fourth-quarter release raises concerns whether Ford's bench is deep enough to pull off a turnaround of this magnitude," Nesvold said.

The automaker expects its turnaround plan to restore it to profitability in 2009, and its fourth-quarter results demonstrate just how far off this goal has become.

The Dearborn, Mich., automaker said it lost $5.8 billion, or $3.05 a share, for the fourth quarter ended Dec. 31. That compares with a year-earlier loss of $74 million, or 4 cents a share.

Excluding special items tied to a sweeping restructuring, Ford lost $2.1 billion, or $1.10 a share, for the quarter, reversing the year-ago profit of $285 million, or 15 cents a share. Sales fell to $40.3 billion from $46.3 billion a year earlier.

Analysts, on average, were looking for a loss of $1.01 a share before charges. Despite the worse-than-expected results, investors sent the stock up 13 cents, or 1.6%, to $8.33.

"We began aggressive actions in 2006 to restructure our automotive business so we can operate profitably at lower volumes and with a product mix that better reflects consumer demand for smaller, more fuel efficient vehicles," said Mulally. "We fully recognize our business reality and are dealing with it. We have a plan and we are on track to deliver."

Looking ahead, Ford expects its performance in 2007 should show improvement on the bottom line as the amount of charges and asset write-offs decline. On an operating basis, however, the outlook is more bleak.

The company forecasts that it will continue to lose market share in the U.S. in 2007 amid an expected sales slowdown throughout the auto industry, and its production levels are also poised to go lower for the first half of the year before picking up in the back half.

Meanwhile, cost reductions will continue as workers are laid off, plants are idled and capacity is reduced.

Mulally acknowledged Thursday that Ford is considering offering a round of bonus compensation to its executive ranks related to the company's turnaround efforts. Such offerings, designed to stem the flow of management talent away from Ford, would be met with resentment from blue-collar workers amid layoffs and salary cuts.

"At the end of the day, everything about our performance going forward is going to be dependent on the management having a good team in place," Mulally said. "The issue about the leadership and the bonuses really fits into that. We're in a turnaround situation and we need to absolute best in each position."

For the fourth quarter, Ford reported a pretax loss of $2.5 billion for its worldwide automotive operations, compared to a pretax loss of $109 million a year earlier. The bulk of the declines came from its all-important North America unit, which logged a pretax loss of more than $2.8 billion compared to last year's $217 million.

Ford said the increased losses in North America reflected lower pricing from higher incentive spending, a reduction in dealer stocks, unfavorable mix, and lower market share, partially offset by cost reductions.

Ford Motor Credit's net income was $279 million, down $26 million from a year earlier. On a pretax basis, Ford's finance arm earned $406 million in the fourth quarter, compared to $482 million in the previous year.

Mulally said 2007 would mark a "trough of profitability" for Ford Credit, based on a prediction that interest rates will go down in 2008, lowering borrowing costs and boosting profit margins.

Still, Ford's overall progress in 2007 is going to be an uphill climb, says Novak.

"The product lineup still looks weak, and even with all the restructuring, trying to determine when the loss of market share will end is almost impossible," he says.

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