June 15 (Bloomberg) -- Honda Motor Co.’s Insight hybrid may fall 33 percent short of its U.S. sales goal as cheap fuel, the economic slump and competition from Toyota Motor Corp.’s Prius undermine demand for the model.

First-year sales of Honda’s gasoline-electric Insight, which debuted at U.S. dealerships in late March, may be 50,000 to 60,000 units, said John Mendel, U.S. executive vice president for Japan’s second-largest carmaker. “I don’t think we’ll get to 90,000,” he said in a June 11 interview at Honda’s U.S. headquarters in Torrance, California.

Gasoline prices in the U.S. have fallen 35 percent over the past year, eroding demand for fuel-efficient cars, even as the overall market has plunged 37 percent due to the recession. Toyota, Japan’s largest automaker, plans to cut the base price of its new Prius by $1,000 to compete with Insight.

“Sales of hybrids have a strong correlation to gasoline prices, especially in the U.S., and Toyota’s Prius has had more customers in the past, so it’s a tough competition for Honda,” said Koji Endo, an analyst at Credit Suisse Securities (Japan) Ltd.

Lower-than-expected hybrid demand in the U.S. contrasts with sales of the car in Japan, where fuel prices are 78 percent higher than in the U.S. The Insight was Japan’s top-selling car in April, before being overtaken by the Prius last month.

Honda’s American depositary receipts fell 86 cents, or 3 percent, to $28 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest drop since May 13. Honda slid 1.6 percent to 2,795 yen on the Tokyo Stock Exchange.

Fuel Prices

Retail prices for gasoline in Japan are $4.69 a gallon, the Tokyo-based Oil Information Center said on its Web site on June 10. By comparison, U.S. consumers paid an average of $2.67 for a gallon of gasoline on June 14, 35 percent less than a year ago, according to motorist group AAA.

The Insight, rated by the U.S. as getting 41 miles per gallon in city and highway driving, is priced from $19,800 to $23,100. By comparison, Toyota’s 2010 Prius, which averages 50 mpg, sells for $22,000 to $31,770.

Hybrid sales in the U.S. fell 38 percent through May to 100,337 units, based on data compiled by Bloomberg News. Slack demand for fuel-saving models led General Motors Corp. to announce June 11 that it’s discontinuing the hybrid version of its Malibu sedan.

Toyota aims to sell 180,000 units of its new Prius in the car’s first 12 months, matching the model’s U.S. volume record reached in 2007. Prius sales this year through May fell 46 percent.

Demand for the Insight should pick up later in the year as the recession eases and fuel prices increase, said Mendel, speaking after Honda marked its 50th anniversary of operations in the U.S.

U.S. dealer inventory of Japan-built Insights is “good” given market conditions and sales may be as high as 4,000 units in June, up from 2,780 and 2,096 the past two months, he said.

To contact the reporter on this story: Alan Ohnsman in Los Angeles aohnsman@bloomberg.net

Last Updated: June 15, 2009 16:33 EDT