Federal legislators are mulling a number of regulations that would cost automakers billions of dollars to meet at a time when General Motors Corp. and Chrysler LLC seek federal aid to simply stay afloat. The rules, which range from potential state jurisdiction over emissions standards, to increased federal corporate average fuel economy standards (CAFE) and other conditions attached to the company's loans, increase the pressure to invest in smaller and greener vehicles.

That means splitting limited resources between efficiency improvements to existing gasoline engines and new technology involving batteries, electric motors and fuel cells. But with U.S. auto sales starting the year at the weakest level in 27 years and most major automakers reporting financial losses in their North American operations, it is hard to invest in expensive technology that doesn't sell well. Hybrid sales fell 12 percent in 2008, and small cars dipped slightly.

The only time sales of those vehicles surged last year was when gas prices hovered near $4 a gallon in the summer. Small car sales peaked at more than 345,000 and hybrids sales hit 41,035. That trend continued until gas prices began to fall again.

Families spend 4 percent of their disposable income on gas, said Eric Fedewa, vice president of global powertrain forecasts for CSM Worldwide in Northville. 'At $3.50 or $4 a gallon consumers will choose different vehicles or smaller engines.'

Vehicles with alternative powertrains yield big economy gains in calculating a fleet's CAFE standard, which pleases Congress. But many of those vehicles will not be for sale until late 2010 and it will be many years before there are significant numbers on the road. Hybrids accounted for 2.4 percent of the market in 2008.

In the interim, automakers are pursuing a higher-volume and more pragmatic solution: getting more power and efficiency from the gasoline engine.

Ford Motor Co. is banking on its EcoBoost strategy to replace larger engines with smaller ones with direct-injection and turbochargers. The effect is V-8-like power from a more fuel-efficient V-6 engine. The company expects those engines will power 90 percent of its lineups by 2013, said Derrick Kuzak, head of global product development at Ford.

GM also is investing in direct-injection and turboboosting. Chrysler is banking on a potential partnership with Fiat SpA to gain access to smaller four-cylinder engines and a range of smaller vehicles.

Hybrids are forecast to increase to only 5.3 percent of the market in North America in 2012, said Lonnie Miller, director of Industry Analysis at R.L. Polk & Co. Miller said dealers are already starting to see cancellations of earlier hybrid orders as customers pull back on their spending.Small cars represent significantly larger volume than hybrids and are a more affordable choice for consumers. But while their sales spiked when gas prices did, total small-car sales actually dropped almost 2 percent in 2008. The situation was not helped by gas prices that started the new year in the $1.65-a-gallon range and have remained around $2 in most places.

Lower gas prices also remove some of the short-term incentive for automakers to invest in smaller vehicles, powertrain technology and retooling truck plants to make cars, Fedewa said.

'If we want the manufacturers to move in that direction, if we want them to be compliant with the law, we also have to allow them to make a profit so they survive,' Fedewa said, noting innovations such as variable valve timing, continuously variable transmissions and gasoline direct injection add about $500 in cost per vehicle while hybrids and diesel technology can add $3,000 or $3,500 per vehicle.

'In an environment where vehicle companies aren't making money as it is, and probably fighting to take half a cent out of a piece of pillar trim cost, adding $3,000 to the cost of a vehicle is just not a good business case,' Fedewa said. 'They just can't do it.'

David Cole, chairman of the Center for Automotive Research in Ann Arbor, agrees.

'It will mean lots of small cars or very expensive technology on large cars,' he said, adding that he thinks the new administration won't force automakers to bring out cars consumers don't want that could 'drive an entire industry out of business.'

You can reach Alisa Priddle at (313) 222-2504 or apriddledteom.