Honda's Prius-Fighter Is Stuck in First

When Honda Motor (HMC) launched the Insight in the U.S. in April, the aim was clear: Challenge Toyota Motor's green mantle by taking on its iconic Prius with a cheaper, super-efficient hybrid. "We're opening up Honda's hybrid technology to an entirely new group of buyers that previously may not have considered a hybrid because of either image or cost," said American Honda Executive Vice-President John Mendel at the time.

Turns out it's a very small group—an inconvenient truth that undermines the very rationale for Honda's hybrid strategy. A company spokesman concedes that the Insight will miss its sales target of 40,000 cars this year by a wide margin. And it's not clear that the Insight will ever seriously challenge the Prius because Honda has overlooked a lesson Toyota learned years ago: Hybrids aren't a budget purchase.

Consider that many Prius owners make well over $100,000 a year. That means this group can afford a much classier ride than a fuel-efficient hatchback. According to Toyota's research, hybrid shoppers are looking for lots of leg room and creature comforts. Toyota upped the ante with the third-generation Prius, which rolled out about the same time as the Insight. The latest model features bigger, more comfortable seats, extra horsepower under the hood, and some Lexus touches inside.

Next to a Prius, the Insight is a squeeze. That's because Honda based its design on the Fit subcompact. The Prius is built using a stretched version of the Corolla compact platform. The result: The Prius has a relatively spacious 94 cubic feet of passenger space, nine feet more than an Insight. Three adults can sit comfortably in the back seat of a Prius; not so in the Insight. "The Prius got bigger with every generation," says Eric Noble, president of the CarLab, an auto consultancy in Orange, Calif. "The car is no longer a compact. It's a legitimate family car."

It doesn't help that the Insight, despite being smaller and lighter than the Prius, gets only 41 miles per gallon in combined city and highway driving; the Prius gets 50 mpg.

Even the Insight's cheaper base price of $19,800 has proved no match for the Prius. When the Insight arrived earlier this year, Toyota had a bunch of last year's Priuses left; it quickly began offering rebates. Now, if it feels the need to goose sales, Toyota can remove the fancy Bluetooth phone system from its current Prius and put in a cheaper stereo. Doing so would allow Toyota to knock the Prius price down to $22,400—$700 more than a fully loaded Insight, says

Honda has another unanticipated issue. The Insight is eating into sales of its $24,000 hybrid Civic. When buyers arrive at showrooms they find that the Insight is cheaper. Plus the hybrid Civic looks almost exactly like the regular gas-powered version. The Insight, on the other hand, telegraphs instant green cred.

So far this year, the Prius is outselling the Insight by nearly 6 to 1. Other carmakers are watching closely. General Motors, for one, is reviewing its entire hybrid strategy. In late November, GM shelved plans for a 53-mpg Prius fighter for its bread-and-butter Chevrolet brand. GM product planners are starting to think they would be better off focusing on next-generation plug-in hybrids and electric cars such as the Chevrolet Volt, which is due next year. Even if those vehicles can't beat Toyota's Prius in the short term, they earn GM green-tech bragging rights. Given Honda's experience, GM may have the right idea.

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