emissions, regulations, environment, efficiency

Investment firm Sustainable Asset Management, together with the Washington-based World Resources Institute, recently issued a report detailing the costs to automakers of complying with the environmental regulations expected within the next decade in the U.S., Europe, and Japan. And the report wasn't good.

The report found that, in addition to the regulations already put in place in the last 50 years, the U.S., Europe, and Japan will likely enact yet more new regulations. These expected legal requirements will raise Ford's costs of producing a vehicle by $403, GM's costs by $377, and Honda's costs by only $24. That difference between U.S. made (Ford and GM) vehicles relative to foreign car makers (Honda) isn't accidental. Honda and Toyota could actually benefit from new regulations because they have already made significant investments in creating environmentally-friendly technologies, such as hybrid gas/electric engines.

Because the analysis of new regulations are based upon conjecture rather than on hard data, projecting the costs of these new regulations become difficult. At the same time, China is preparing to introduce additional fuel standards: Since China has the fastest growth of automobile purchases globally, this move could influence what other countries do as well. One analyst pointed to the "carbon intensity" of Ford's profits, indicating the extent to which Ford's profits relies on vehicles that create significant carbon emissions. Therefore, Ford products are vulnerable to new, stricter environmental regulations. For investors thinking about future purchases of Ford stock, this could pose a problem.

(Updated September, 2004)