It will provide comprehensive traffic information not only to motorists but also directly to mobile phones and personal digital assistants (PDAs).
Ford has developed the prototype as part of the 'stadinfokoeln' project sponsored by the German Federal Ministry for Education and Research (BMBF).
It is one of five research projects focusing on 'mobility in the urban environment', which the BMBF has just presented at an information seminar held in Berlin.
The project's main objective is to 'develop the ability to manage traffic levels in conurbations and reduce problems created by inner-city traffic', Ford said.
It added: 'One goal is to achieve a reduction in the level of traffic searching for a parking space, which will reduce congestion, emissions and noise levels, and lead to a general improvement in the quality of life in heavily populated urban areas.
'Hours spent in traffic jams are costly and result in much wasted time, so by reducing these, there is also potential for conurbations to once more become attractive locations for industry, helping to support urban regeneration,' it added.
It said the key to achieving such a goal is a system providing the means to deliver up-to-the-minute traffic information in conjunction with a guidance system, which works in any location, including large cities.
'Sensors installed in the road, monitor traffic status and relay information on any delays to the moving car's navigation, typically a component built into the car radio,' Ford said. 'New routes are then worked out to help the driver avoid the most recent traffic jams.'
It claims that a 'significant additional element' of the prototype system is its ability to provide information on available parking space in urban multi-storey car parks and roadside parking areas.
Ford says that in the future motorists could use the navigation system to access information provided by local public transport companies so they can plan their journey using different transport modes.