Honda's Affordable Hybrid: A Cure for the Sales Slump?

Americans love hybrid cars, but in a recession they don’t love hybrid car prices. The premium of $2,000 or more typically asked of hybrids is a factor in a steep drop-off of sales. A key to success in today’s economic tsunami may be smaller, more affordable hybrids. And that’s why the compact $19,800 Honda Insight (40 mpg city/43 highway) is so timely.

Some 15,144 hybrids were sold in February, a dramatic two-third plunge from the high point of the market last April.  Both the Honda Civic and Toyota Prius hybrids have gone from waiting lists to overstock. (One reason for this is that neither vehicle is eligible for a federal tax credit any longer.)

I’ve thought from the get-go that Honda should offer a hybrid version of the extremely versatile Fit. That car is now coming in 2010 or later, though it’s unclear if it will be offered in the U.S. Honda said last May that it eventually expects to be selling 500,000 hybrids annually, though it may be lowering its expectations in the face of a worldwide recession.

The Insight, which goes on sale in the U.S. next week, is already selling like hotcakes in Japan. Honda was hoping it could reach 5,000 orders a month, but it got that many in the first week. Before the car was on the market, there were 5,000 advance orders.

The Insight is appearing in the U.S. at a challenging time, but its long-term prospects remain excellent. Oil prices are unlikely to remain at their current record lows, and with higher prices hybrid demand will likely bounce back. The International Energy Agency (IEA) said last month that there is serious threat of a new supply crunch in 2010 when it believes global economic growth will resume.

The U.S. Energy Information Agency sees relatively stable prices ahead, however. “Retail gasoline prices are projected to average $1.96 per gallon in 2009 and $2.18 per gallon in 2010,” it says.

Here’s a closer look at the new Insight from Motor Trend: