Launching its third makeover plan in four years, Ford Motor Co. last week offered a buyout to all 75,000 of its hourly employees in North America. The company now plans to cut 38,000 jobs by 2008 and shrink its production capacity by 26 percent. Even measures that drastic may not be enough to pull Ford's chitterlings out of the fire.

A sharp downsizing is needed to compensate for weak sales. But companies don't shrink their way to prosperity; they grow their way forward. Ford last year built almost 18 percent of all cars and light trucks sold in America. That share is down to 17 percent now, and company executives expect it to fall to about 14 percent.

Real success requires growing sales and wider margins. That means building more good cars that people want to buy. Ford's biggest problem is its self-proclaimed Job One: Quality. To be perfectly blunt, Hondas and Toyotas are better.

Ford's announcement was long on downsizing but short on product improvement. The company said it plans to overhaul 70 percent of its product lineup by 2008, and a new crossover SUV is on the way. That's good as far as it goes, but Ford needs significant improvements in styling and quality to win back customers.

Ford lost $1.4 billion in the first half of this year, and it doesn't expect its North American auto business to be profitable again until 2009. Although Ford is nowhere near bankruptcy now, its remaining 92,000 North American workers will be in peril if the company can't turn around over the next few years.

The view also is dismal at the other members of the old Big Three. GM is also bleeding billions and rapidly shrinking its workforce. DaimlerChrysler said its U.S. Chrysler unit will lose $1.5 billion in the third quarter, double its previous forecast, and Chrysler is the healthiest of the bunch.

Like the prospect of a hanging, the possibility of financial catastrophe can concentrate the mind, and Chairman Bill Ford clearly is paying attention. He brought in Alan Mulally from the Boeing Co. as Ford's new chief executive, opting for a solid manufacturing executive without the inbred management habits that crippled Ford.

On Friday, the company canceled its stock dividend in order to put that cash into the turnaround. It was a rational move, even if Wall Street hated it.

Like GM and DaimlerChrysler in the United States, Ford suffers from three main maladies:

1. Benefit Bloat: Its workers' paychecks are not significantly larger than American employees at foreign carmakers. But the Big Three pay better benefits and they support many retirees with robust health insurance plans. Analysts say that gives the foreign automakers a $1,500 to $3,000 per-car cost advantage. American automakers could handle that when customers were buying highly profitable $40,000 SUVs. It's tougher when buyers switch to $20,000 gas-sipping sedans.

2. Vehicle Bloat: In the 1990s, the U.S. Big Three dominated the market for pickups, mini-vans and SUVs. They largely abandoned the car market, with its lower margins, to the foreigners. With gasoline prices in the stratosphere, Ford and GM suddenly must think small again.

3. Innovation Deflation: This is the most serious problem at both Ford and GM, and it's a challenge at DaimlerChrysler too. They've pulled closer to the Japanese on quality. But, with some exceptions, American cars lack the touch and style of the foreign automakers. GM and Ford need to pep up their product line. And quickly.

To its great credit, the United Autoworkers clearly sees the fix its members are in. It's working with both GM and Ford to ease work rules to increase efficiency and ease workers out the door with as little pain as possible. Blue-collar workers will be offered generous buyouts. Non-union white-collar cuts will be done mainly through attrition and early retirement.

When Ford's cuts are added to those announced at GM, 90,000 North American jobs will soon disappear. These are among the last high-paying jobs available to workers with few skills. Some jobs will be replaced, at somewhat lower pay, as foreign carmakers expand their U.S. factories, largely with non-union labor. Still, trouble at Ford and GM is bad news for American workers in an industry in the throes of a painful transition.