The world's automakers and their investors better be paying close attention to California. Whatever their opinion of the state's politics, new environmental policies, if fully enacted, promise to reshape the nation's largest auto market. And where the Golden State goes, others often follow.
The first policy, which I've discussed here before, calls for as much as a 30% reduction in carbon dioxide and other vehicle emissions by 2016. The California Air Resources Board unanimously approved the new rules, which are set to be gradually phased in from 2009 to 2016. The new regulations are scheduled to take effect next year.
The second policy, which was recently signed into law by Gov. Arnold Schwarzenegger, is actually more intriguing because it appeals to Californians' self-interest. According to Forbes, the legislation allows owners of hybrids that get at least 45 miles per gallon to use high-occupancy vehicle (HOV) lanes. Sure, the left coast is known for producing its fair share of environmentalists, but have you ever heard a Los Angelino complain about traffic? The HOV lane is the Promised Land for many Californians -- so much so that a lot may be willing to fork over extra for a hybrid in order to enjoy the open road.
In light of this new legislation, as is so often true, Japanese outfits again appear to have an edge over their American counterparts. Toyota (NYSE:TM), which has been enjoying banner profits, may only grow stronger given the popularity of its Prius, followed by Honda (NYSE:HMC) with its hybrids.
That's not to say that others can't catch up. Ford's (NYSE:F) new Escape hybrid SUV will give that automaker an entry into the market, although because of its high mileage, it doesn't meet the standards of California's new HOV law.
However you feel about California's legislative initiatives, it will pay to be on top of the news. If the new regulations stick, California will help define the success or failure of automakers in the future.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
