Is the 2010 Toyota Prius Too Fancy For Its Own Good?

2010 Toyota Prius

In less than two weeks, we'll have driving impressions of the 2010 Toyota Prius. But since Toyota unveiled the car in January, the landscape for high-mileage hybrids has changed.

Gas prices seems to be staying well below the $4/gallon levels they reached last summer. Our severe economic downturn--recession? depression?--has destroyed consumer confidence, cutting US auto sales by an unthinkable 40 percent and devastating all automakers.

And then there's the 2010 Honda Insight.

Its mileage is almost as good, but it costs less. Might the 2010 Prius be adding new features and luxury options just at the wrong time? Will buyers decide that smaller and cheaper is good enough when they shop for hybrids? Toyota is anxiously waiting to find out.

Since 2006, the Prius has reigned as the only notable "dedicated" hybrid. Now Honda has returned to the fray with the Insight, its own dedicated hybrid in the Prius mold. It seats four (five in a pinch), and it too is a high-tailed hatchback with a similar profile. But it's one size smaller, no bigger than a Corolla, against the Prius's Camry-sized capacity.

The Insight gets 41 miles per gallon, versus 50 mpg for the 2010 Prius. But with delivery, its base price is $20,500, against the $22,000-plus of this year's Prius. Honda's new ads hammer home the difference, calling it "the most affordable hybrid."

What will a 2010 Prius cost? Toyota hasn't said, and you can bet it's furiously calculating how much--or how little--money it needs to make on the new model.

Consumers will likely do the same thing. If a new Prius costs, say, $3,000 more than the Insight, but only saves $90 a year on gasoline (assuming 10,000 miles a year; see here for calculations), will buyers who don't need the extra space or features really pony up?

Toyota is clearly worried. The Insight is already a huge hit in Japan. There, Toyota will sell the old Prius alongside the new one as a lower-price alternative, though it said later that won't happen in the States.

Toyota expects to sell 180,000 new Priuses in the car's first full year in the US, the most ever sold here. But its sales have plummeted lately too (Prius sales fell 34 percent against last February's). Analysts call the 180,000 goal very aggressive, unless buyer confidence comes roaring back.

So today, Toyota announced it will hedge its bets and develop its own, lower-cost hybrid by 2011. In true Toyota tradition, details are sparse.

According to Nikkei business daily, it will be--like the Insight--a subcompact with an engine smaller than the 1.5-liter unit in the 2009 Prius (the 2010 model gets a 1.8-liter engine). The new car's target price is 2 million yen, or about $20,500 (the 2010 Prius sells for 2.33 million yen). Sound familiar?

The Prius is still in a strong position. It dominates the global hybrid market, it continues to get great reviews, and it's far better known than the Insight. This should be a fascinating faceoff. And with more dedicated high-mileage hybrids in the market, everybody wins.

The 2010 Toyota Prius will go on sale in the US around Memorial Day.