The Honda Insight, a sub $20,000 fuel efficient hybrid was expected to sell in big numbers.  The first month sales were record breaking leading Honda to believe that an increase in production was in order.  Now new predictions are in showing that the Insight may indeed fall 33% percent short of its U.S. sales goals.

Why?  There are a few reasons and one is definitely the competition from the Toyota Prius.  The two vehicles have fought it out with Toyota reducing the price on their Prius to be more competitive with the Honda.  The plan seems to have worked for Toyota.  Coming soon, Toyota will introduce the base or Level 1 Prius, which is nearly the same price as the base Insight which should lead to even more competition from Toyota.

 However, the entire focus and cause for dropping the sales target of the Insight is not attributable to Toyota.  Honda blames the economic conditions and cheap fuel prices for the expecting decline in sale of the Insight.  Gasoline prices are down 35% from this time last year and buyers are not eager to purchase a new fuel efficient car when gas prices are low.  Additionally, the recession has cause a 37% decline in the new car market.

It turns out that sales of hybrids have a near direct tie to gasoline prices.  As prices rise, hybrids sells.  As prices drops, hybrids stay on lots.  With gas prices relatively low, buyers considers other options that may be less fuel efficient.

Honda now believes that their sales volume for the Insight will; be in the neighborhood of 50,000 to 60,000 untis, a number well short of the initial expected sales of 90,000 units in the first year.

For now, Honda may have to wait it out as many analysts predict higher gas prices in the fall as the recession eases and the market begins to rebound.  The new Cash for Clunkers legislation could impact sales of fuel efficient vehicles offering large incentives to buyers, but the bill must still pass the Senate and become law.