Wed Jan 3, 10:23 PM ET

DEARBORN, Mich. – Alan Mulally said Wednesday that he canceled his order for a Lexus after taking over as Ford Motor Co. CEO, but he nevertheless respects Toyota Motor Corp. and its luxury brand, though he has no intention of bringing the companies any closer.

Mulally, who took over at the nation's No. 2 automaker last year, said he deeply admires the Japanese automaker for its manufacturing processes and product development strategy. He said that was the reason for his trip to Japan last month to meet with Toyota executives.

Mulally called Toyota “the finest machine in the world, the finest production system in the world. So we went to study with the master. I really wanted to connect with each of the manufacturers in the industry and to do it quickly,” said Mulally, who was hired away from aircraft maker Boeing Co. by Ford.

Reports that Toyota Chairman Fujio Cho met in Tokyo with Mulally at the latter's request had sparked investor hopes about a potential alliance.

Ford on Wednesday reported an 8 percent drop in U.S. sales last year compared with 2005. But it was able to hold off Toyota after Toyota's sales surpassed Ford's for the first time in July and again in November.

Mulally and Mark Fields, Ford's president of the Americas, said Ford's painful recovery will be driven by new products brought to market more quickly. They spoke to reporters at a private dinner that featured a briefing and question-and-answer period.

“Despite the numbers, it (2006) was a year of incremental progress for us,” Fields said. “It's like building a house. We built the foundation last year. But you don't see the house. You see a hole.”

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