Prius Battles Insight In Hybrid Price War

By dancurranjr On May 17th, 2009

2010_honda_insight_hybridToyota’s chief engineer, Akihiko Otsuka, chose a curvy test-drive course near Mount Fuji to show off the smooth handling of the prototype of the remodeled Prius hybrid, set to reach showrooms in May.

He proudly told reporters its outstanding mileage – 50 miles per gallon – roof solar panel, collision safety features and how fun it was to drive.

But throughout the recent event at Fuji Speeday, Otsuka was just as intent on stressing how the Prius performed better than the new, hot-selling rival hybrid from Honda, the Insight. He did say he was surprised, however, at the upstart’s price $2,000 to $4,000 less than the current Prius model.

“ it was lower than anything I had expected,” he said with a little laugh. “Honda has done a great job.”

Welcome to the new price war in hybrid vehicles.

Toyota’s Prius, the long-reigning hybrid king, faces its toughest competition yet in the Insight, whose sales have already topped 21,000 in just a month and half in Japan – more than triple Honda Motor Co.’s target.

The Insight starts at 1.89 million yen ($19,000) in Japan, and $19,800 in the U.S., when it arrives in showrooms.

The current model of the Prius now sells for $22,000 in the U.S. and 2.3 million yen in Japan. The remodeled third-generation Prius is a bigger car with a more powerful engine than the current Prius and would have otherwise been expected to bear a higher price tag.

A hybrid offers savings at the gas pump because of its superior mileage that comes from switching between a gasoline engine and an electric motor. But tey tended to be more expensive because of the motor, battery and other extra parts – until the arrival of the Insight.

Otsuka said Toyota was considering pricing the new model lower than the current model, while declining to disclose the price. The stronger yet has made price-slashing difficult in the U.S. But he also said Toyota was well aware it wasn’t a wise idea to set the U.S. price too much higher than the Japan price.

For the longer term, Toyota is also developing a smaller hybrid that will compete more directly with the Insight, he said.

He did not give details but said it would be a “Vitz-class” vehicle, a subcompact like the Yaris in the U.S. He said that would make for a more affordable addition to Toyota’s lineup.

The Nikkei, Japan’s major business daily, reported recently that the planned model would underprice the Insight, costing no more than a comparable regular car, and is expected to go on sale in 2011. It did not cite sources, which is standard for Japanese media reports.

The world’s automakers have been working hard to develop hybrids although their appeal has subsided somewhat after oil prices have declined in recent months. Toyota’s Prius is the global top-seller in gas-electric hybrids at a cumulative 1.2 million sold around the world since its 1997 debut.

The battle among hybrids comes amid a steep drop in auto demand that has hit Japan’s top brands hard. Toyota is expecting a 350 billion yen ($3.67 billion) loss for the fiscal year through March – its first such yearly red ink since 1950.

Still, there has been speculation in the Japanese media that Toyota would not only set the new Prius price lower than initially expected at about 2 million yen but that it will also continue to sell the current Prius, matching Insight’s price.

It would be an unusual move in the industry, where old models are discontinued. Toyota declined comment on the reports.

“ The popularity of hybrids is going to pick up momentum very quickly because of their low prices,” said Yasuaki Iwamoto, analyst with Okasan Securities Co. in Tokyo.

But the price war will also cut into profit margins from hybrids, already slimmer than those from regular vehicles, Iwamoto said.

Toyota has also cut costs required to make its hybrid system by about 20 percent to 35 percent, Otsuka said, while not giving specific number. To keep the starting price tag low, frills and perks for the new Prius will likely be offered as options, according to Toyota.

An ingenious feature of the Prius is the solar panel on the roof, which powers an air-ventilation fan that works automatically while the car is parked so you don’t have to get into an uncomfortably hot car.

It’s no accident the marketing slogan for the new Prius is, “the only hybrid for the earth,” Osatku said. He really believes Prius will continue to be the best in mileage, drivability and brand power.

SOURCE: Chief Engineer

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