Automakers, start retooling your factories to make more fuel-efficient cars.

That was the message from President Obama, who on Monday directed the federal Department of Transportation to tighten fuel-efficiency standards.

The transportation department will devise rules to carry out a 2007 law that mandates a 40 percent improvement in gas mileage for cars and light trucks by 2020. Under the new law, cars would be required to have a fuel economy of 35 miles per gallon, up from 25 miles per gallon today.

Although former President Bush signed the 2007 law, the transportation department never got around to writing the regulations to enforce it.

Automakers will have to act quickly, because the new rules are expected to take effect starting with the 2011 models. Obama's action should come as no surprise, given he has built his economic plan on promoting renewable energy generation and other greentech businesses.

Even before Obama took office, Congress had already set aside $25 billion in loans last September for carmakers to make more fuel-efficient cars. Tesla Motors, a startup electric carmaker in San Carlos, Calif., has applied to the program (see Tesla CEO Denies Bankruptcy Rumors, Seeks $20M).

Congress also approved an additional $17.4 billion in loans to bail out General Motors and Chrysler, and the help came with stipulations that the two companies must build more fuel-efficient vehicles (see U.S. Automakers Get Federal Bailout).

Although carmakers are devoting more resources to make less polluting vehicles, they also have lobbied heavily against regulations that set higher fuel economy standards.

On Monday, Obama also signed a memo ordering the Environmental Protection Agency to review a previous decision, made under the Bush administration, to deny California and 13 other states to set tail-pipe emissions limits that would be stricter than the national ones (see Obama to Seek to Allow California, Other States, to Impose Emission Standards).

The EPA denied the waiver request from California in 2007, prompting some fighting words from Gov. Arnold Schwarzenegger, a Republican who has fashioned himself a big greentech proponent (see EPA Rejects California Vehicle-Emissions Standards).

Temporary regulations to carry out his two orders today are expected to be in place by March, so that carmakers can start working on the 2011 models to comply with the new regulations.

Tags: cars, epa, fuelefficiency, obama