California, home of double-decker super-freeways and the birthplace of the SUV craze, is railing against automobile emissions.
The Golden State will soon unveil aggressive regulations that will force automakers to lower greenhouse gas emissions on their models by 30% by 2015. The new rules, which would go into effect in 2009 and be fully phased in over several years, mark the first effort to regulate gases such as carbon dioxide. The ambitious goals may present a difficult challenge for many automakers.
According to TheNew York Times, in order to achieve the objectives, the average fuel efficiency for new cars would have to rise from 20.7 miles per gallon currently to 27 miles per gallon. In other words, all new vehicles sold in California, including trucks and SUVs, together would have to be as fuel-efficient as today's smaller sedans.
If these regulations go into effect, a few automakers would be better off than others. Strangely, corporate average fuel economy (CAFE) ratings are based on vehicles sold, rather than vehicles offered for sale. So Japanese companies, with their strength in the passenger car market, are in good shape. Honda (NYSE:HMC), a longtime leader in low-emission and fuel-efficient vehicles, has the highest rating among the automakers. In addition, Toyota (NYSE:TM), with its fast-selling electric hybrid Prius, also looks well- positioned.
American firms, meanwhile, with their greater reliance on SUVs and heavy trucks, fare poorly in fuel standards. Ford (NYSE:F) may be the most vulnerable, given that its recent sales have been supported by its truck lines. Then again, Ford's new Escape hybrid SUV should help redress this imbalance.
Not surprisingly, automakers are not too happy with California's plan. In fact, the industry may sue the state to block the rules, arguing that the new regulations amount to regulating fuel efficiency, a power reserved by the federal government. But whatever the outcome, it may be time for Detroit to refocus on the passenger car market.
Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.
