The real issue lies with emissions. Most of the cars that would qualify are diesel powered. While many are now equipped with particulate filters and would have no issue with soot emissions, NOx is another story. Given that California seems to be particularly averse to NOx emissions, it seems unlikely that they would agree to this waiver and its not clear that the president has the power, even under the War Powers Act, to over-rule California's emissions standards.
The other problem with this plan is that right now even fuel efficient cars are not selling because many people, especially those at the low end of the market, can't get credit and they can't afford to pay cash for a new car. Such a plan would have been helpful six months ago, but unless Hank Paulson is willing to start leaning on his banking buddies to actually loan money out instead of just hoarding that $700 billion, it probably won't help. The cost of importing these cars from Europe rather than producing them domestically would probably also make the plan non-viable.
[Source: GM Inside News]