Who Benefits from Obama's New Emissions Requirements

By Bob O'Brien

It was quite funny just last week at the White House Correspondence Dinner when President Obama joked about how the magazine “Car and Driver” named him the “Auto Executive of the Year”. (Click here if you missed Late Night with Obama)

This was one of his better jokes at the always tongue-in-cheek banquet. After he saved the U.S. auto industry with bailouts, pressured the CEO of GM out and was the first president ever to make such a strong sales pitch for US automobiles; Obama really deserves to be “Auto Executive of the Year”.

Then on Tuesday, Obama announced that the automakers would need to meet stricter emissions standards by 2012, with the goal of all cars getting 39 miles per gallon by 2016. That would be the equivalent of taking about 177 million cars off the road. Click here for more details of the plan.

He won’t be “Auto Executive of the Year” anymore. This basically assures bankruptcy for General Motors (GM). It's not exactly great news for Ford (F) either as a lot of their revenues come from trucks. The estimated cost to the auto industry will be about $47 billion.

GM has actually been up 20% since the announcement on speculation that it might be able to make these necessary adjustments and be viable long term. Ford on the other hand has been volatile, down about 4% since the announcement. Both of these stocks are not quality long term investments due to their incredible weakness right now.

Who are the big winners from this announcement?

Toyota (TM) and Honda (HMC) are way out in front of the American car manufacturers in this area. Both are much more capable of producing a lot of cars that meet these mileage standards and are much better at fuel efficiency technology (amongst other things) than the US automakers.

Honeywell (HON), Eaton (ETN) Borg Warner (BWA) Johnson Controls (JCI) are winners in this announcement due to the fact that they are producers of things like fuel efficient engines and batteries used in hybrid engines. The announcement came as no surprise, so the projected increased sales revenues have already been priced into many of these stocks. Nevertheless, these are companies to keep an eye on for the future.

O’ Reilly Automotive (ORLY), AutoZone Inc (AZO) and Advance Auto Parts Inc (AAP) have all established a nice defensive relationship with the market. (Check out Sean’s great article in regards to these stocks) When the market was tanking earlier this year, these stocks jumped, so they should continue to be good earners and stable stocks as we watch the economy and stock market unfold. If the market tests its old lows these stock should hold on!

Original article

Comments

[Jonathan1975:]

The piece that everyone seems to forget when talking about fuel efficiency is that many companies already make cars that are highly fuel efficient including companies like ford and gm. This is actually reinforcing along with stubbornly high gas prices what ford is already doing, by creating more "world platforms" and bringing many of the vehicles sold in Europe for the past few decades that are smaller have more efficient engines and get 10-12 mpg better mileage than most of the cars sold here in the US. In order for cars to continue making the move to greater efficiency, Americans will need to get over the outdated notions that diesel is noisy and smelly, the new engines are about the same noise and smell wise as a gas engine, but do substantially better than gas engines including hybrids--see new VW diesel being sold in the jetta that gets upto 58mpg freeway while producing 20-25 more horse power than a hybrid prius. Ford and GM have been preparing for a "world platform" for the past several years, unfortunately legacy costs and a huge recession zapped these companies, but Ford because of timely borrowing and GM via the new Government Motors will make it to the other side on this. Chrysler has been poorly run for far too long, and now that it is in the process of being merged into other auto companies Fiat, potentially Opel, you will see a big shift to rebadged Fiats and Opels on the Chrysler line in the next 18-24 months. If you want to point to a single big blow against the US companies it is that GM must sell Opel, as the very successful Chevy Malibu and its cousin Saturn Aura were rebadged Opels--how will GM build mid size cars in the future without Opel? This is why in the long run Ford is a good company and GM in the process of slimming down will have the further process of learning how to build good cars of all sizes instead of simply trying to buy a company that does it--see Opel and Daewoo (for those that thought Daewoo is dead...wrong, GM simply calls it a Chevy in this country and it is still Daewoo in Asia--and actually sells well in Asia).

May 24 03:28 PM

[Alan Young:]

For 30 years, US automakers have been lobbying aginst better emissions and fuel standards, rather than trying to improve their products to match standards easily met by Japanese and European companies. Their luck finally ran out. Any company that fights innovation instead of investing in it deserves a similar fate. No tears.

May 24 03:32 PM

[SeattleSlew:]

Great piece, Bob. Concise and to the point. Thank you.

May 24 06:06 PM

[a. palmer jr.:]

Any reason for us to "buy American" when our own automakers don't? Of course they lobby against gas mileage and emissions because there's more money to be made on gas guzzler trucks and suvs.
I don't think it's American people that insist on the big cars, I think the automakers have duped us into thinking that all Americans prefer them so they can continue to rake in the profits as well as their big oil buddies.

May 25 09:26 AM

[Pstoneki:]

I agree. It will be interesting to see what happens when oil drives gas prices to $8-9/gallon here in the US. A lot of folks here at SA seem to believe there will be riots in the street, the economy will shut down, nothing will be shipped, the left wingers will come for their guns, etc. Wow - just like the Europe of today. And, we'll be driving smaller, much more efficient cars (at least smaller than most SUVs). That being said, we should be driving cars like the fantastic new diesel Jaguar XFd, Mercedes E250, BMW 530d, any of the Toyota, VW or Nissan diesels, or, heaven forbid, the diesel Ford Mondeo and Focus. All with 40+ miles per US gallon. And plenty of performance and handling.

Americans as sheep have been fleeced too long by the SUV-marketing Big 3. Time for a regime change.


On May 25 09:26 AM a. palmer jr. wrote:

> Any reason for us to "buy American" when our own automakers don't?
> Of course they lobby against gas mileage and emissions because there's
> more money to be made on gas guzzler trucks and suvs.
> I don't think it's American people that insist on the big cars, I
> think the automakers have duped us into thinking that all Americans
> prefer them so they can continue to rake in the profits as well as
> their big oil buddies.

May 26 01:14 PM