Honda Primes the Pump

Falling gas prices have taken some of the steam out of hybrid car sales lately. But you wouldn't know that from all the buzz about hybrids at the opening day of the Detroit Auto Show. First, GM introduced its Chevy Volt plug-in hybrid concept . And then Honda CEO Takeo Fukui revealed in an interview with NEWSWEEK that his company is developing an all-new small hybrid car that he described as a five-passenger version of its quirky two-seater, the Insight gas-electric car. But unlike the Insight, which sells in small numbers to die-hard greenies, Fukui says this new Honda hybrid will be aimed at mainstream car buyers when it hits the road in two or three years. "Hybrid technology is very strong and proven technology for improving fuel economy," he says. "And we won't relent in our efforts."

For Honda, this new hybrid could finally be the answer to the megawatt popularity of the Toyota Prius, which controls more than half the market for hybrids in the U.S. Even though the Honda Insight was the first hybrid on the U.S. market when it launched in 1998, the Prius, with its larva shape and 60 miles per gallon fuel economy, has come to define hybrids in America. Unlike the cramped little Insight, the Prius offers the five-passenger spaciousness of a Camry, with gas mileage better than its smaller sibling, the Toyota Corolla. By contrast, Honda's hybrid version of its five-seat Accord model flopped in the market, Fukui admitted, because it didn't deliver the good fuel economy hybrid buyers expected. Lately, though, sales of all hybrids have slowed as gas prices have fallen back toward $2 a gallon.

Honda's new hybrid, though, won't be a version of anything else in its lineup. Instead, like the Prius, Honda's new hybrid will have its own design from the wheels up. "We can envision something close to the Insight with five-passenger capacity and a relatively low price for mass-market consumers," says Fukui.

How low will the price be? Honda won't say. But the company offers a clue in how it describes the car. Code-named "Global Small Hybrid," Honda's new car will be about the size of its tiny Fit model, which is positioned just below the subcompact Civic in size and price. The Fit starts just under $14,000. So even with the $3,000 or $4,000 premium you pay for a hybrid, this new Honda could be priced below $20,000, potentially making it the least expensive hybrid on the market.

It also could be among the most miserly on gas—even topping the Prius. The Honda's unique body shape and propulsion system will be designed to maximize mileage, company officials say. "We're going to take a dedicated hybrid platform and give it great functionality, great style and make a no-compromises high-fuel-economy car," says John Mendel, Honda senior vice president for product development. "It will have the highest fuel economy you can get for a hybrid in that (size) of car." (It won't, however, be a plug-in hybrid like the Volt, Mendel says, because that would require a breakthrough in battery technology that would delay Honda's plans.)

Honda has high hopes this hybrid will be a home run. In fact, Fukui expects to sell as many as 100,000 models annually, nearly matching the 107,000 Prius models sold in America last year. (By comparison, Honda's current top-selling hybrid, the Civic, sold 31,253 models last year.) Eventually, Fukui expects his hybrid model could sell double that amount. "Because hybrids have become so popular," he says, "it is quite feasible to sell 100,000 to 200,000 … So when we start from there, we can afford to pay for a new body style that is exclusive to the car."

Hybrid sales reached a record 191,000 models in the U.S. in 2006. But that still accounts for only a little over 1 percent of the 16.5 million autos purchased in America last year. Toyota, the most bullish hybrid proponent, sees the U.S. market for the gas-electric models growing to 300,000 this year. Toyota Motor America President Jim Press told NEWSWEEK that every model in his company's lineup will eventually come in a hybrid version. "The take rate on hybrids will accelerate as fuel prices increase and we focus on reducing our dependence on foreign oil and reducing carbon dioxide," a leading cause of global warming, he says. "So everything is converging to where the solution is hybrids."

Normally, Honda would never reveal so much about a car that likely won't hit the showroom until 2009 or 2010. But with Toyota running away with the hybrid market—and nervous consumers demanding more fuel-efficient models—Honda is trying to prime the pump and remind the public that it was selling hybrids before they were cool. "We think this could be a huge opportunity for us," says Mendel. "It's our next-generation view of hybrids." In a few years, Honda will have a chance to see if its view squares with that of the car-buying public.