California and 16 other states seem close to being allowed to hold automakers to tougher emissions standards than the federal government has in mind. If these states move ahead with their plans, they'll generate enough of a critical mass to largely determine what the rest of the country is driving. So it made me wonder what dealer showrooms will look like beyond 2011, when the first of the latest round of emissions standards go into effect. For some answers, I talked with Paul Ballew, who spent several years as a sales and markets analyst for General Motors ( GM) and is now senior vice president of customer insights and analytics for Nationwide Mutual Insurance. It can be tricky to tell what the future holds, even for someone who does it for a living. At the very least, Ballew was able to tell me pretty confidently what he doesn't expect to see in showrooms -- lots of heavy, gas-guzzling trucks and SUVs. "The probability of a comeback for this segment is low," he says. "You need a strong economy and $1.20 gas prices, so I can't see a scenario where that will be a magic bullet for Detroit." Those who haul soccer teams or 2-by-4s around on the weekend needn't despair. Just plan on seeing more crossover vehicles that put truck or SUV tops on car bases that can handle smaller, more fuel-efficient engines. The Toyota ( TM) Highlander and the Buick Enclave are examples. A wider variety of alt-fuel vehicles are also likely to make their way into showrooms. "The great hope is that the cost for these vehicles will decline as you hit scale," Ballew says. In addition, "competition should bring out different products at different price points." As an example, he points to the Honda ( HMC) Insight, a small hybrid that will hit showrooms this year with a starting price below $20,000.
Toyota has been showing a concept version of the Camry at recent car shows that runs on natural gas, and General Motors has been heavily promoting the Chevy Volt electric car as proof that Detroit can still innovate. To help push consumer tastes in these new directions, former President George W. Bush last fall approved a tax credit of up to $7,500 for the first 250,000 people who buy gasoline-electric, diesel, battery-electric, alternative fuel or fuel-cell vehicles. And just last week, the Senate proposed doubling the tax credit's availability to the first half-million buyers. Regardless of what they run on, expect to see more foreign cars in showrooms and on the road. Consider that May 2007, the first month gas prices topped $3 a gallon, marked the first time in five years that car sales outpaced light-truck sales in the U.S. Two months later, foreign automakers led by Toyota captured more than half of the American auto market for the first time. This shouldn't come as a surprise. European and Japanese automakers have figured out how to make money manufacturing small, fuel-efficient cars because high fuel taxes and tough emissions standards have long pushed consumer tastes down that road in their home markets. And Ballew points out, the Japanese are especially good at taking a single car model and manufacturing it to different standards around the globe. This is why Toyota has long been able to tout the Corolla as the best-selling car in the world. It's also why the top 10 cars in Japan are all Japanese and eight of the top 10 in Europe are European. But in the U.S., six of the top-selling cars come from Toyota, Honda and Nissan ( NSANY).
Detroit came up with just enough smaller models to keep a toe-hold in the European market -- Ford's ( F) Focus and Fiesta do well there -- but several of their offerings are cars they never planned to sell in the U.S. Ballew says redesigning those cars to meet American manufacturing standards wouldn't necessarily be a timesaver for automakers. So now that American tastes are moving away from the high-margin, gas-guzzlers Detroit specializes in, expect to see the more versatile Japanese and perhaps European companies push further onto our shores with the fuel-sipping autos favored overseas. Ballew expects European carmakers to introduce some of the clean-diesel vehicles -- like Volkswagen's alt versions of the Passat and Golf -- that now account for about half of European car sales. Additionally, expect to see more "high cube"-style cars, like the Cube from Nissan. They're popular overseas because they offer head room and cargo space while maintaining a relatively compact profile. The bad news is that, along with these new offerings, you might also see higher price tags in showrooms, Ballew warns, as car makers try to recoup the cost of expediting R&D and retooling factories to get new offerings off the drawing board and out the door. If the coming years really do bring more competition in the marketplace, more choices in terms of style and engine technology, and a wider range of price points for highly efficient options like hybrids, a low-emissions future seems appealing to me. Rev her up!