Honda’s hybrid pricing gambit: the sub-$20,000 Insight

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Honda’s much-anticipated Prius fighter may double as a recession fighter.

The Japanese automaker said today that when the 2010 Honda Insight hybrid hits dealer lots in two weeks, it will carry a base price of $19,800. That puts an end to months of speculation over just how much less expensive the new Honda would be than the Toyota Prius, currently the top-selling hybrid in the U.S.

At under twenty grand, the Insight will be the least expensive new hybrid available in the country; even the more feature-laden EX version of the Insight, which includes alloy wheels and paddle shifters, will be under the Prius’ $22,000 starting sticker. By pricing it so low -- almost $4,000 less than its own Civic hybrid -- yet delivering a car that looks and behaves remarkably similar to the current Prius, Honda is making a risky bet that cost-conscious consumers will be lured to choose its hybrids over non-hybrid alternatives. Meanwhile, with a new far more fuel-efficient 2010 Prius set to hit showrooms in June, the Insight could lose out on buyers who care more about green (as in ecology) than green (as in dough).

Honda apparently has its eyes trained on a broader swath of customers. The Insight, said Dick Colliver, executive vice president for Honda’s U.S. sales arm, ‘brings the cost of entry for hybrid technology within closer reach of an entirely new car-shopping audience.’ The automaker hopes people who otherwise wouldn’t have considered a hybrid will choose the Insight because it’s cheaper to buy and operate than comparable vehicles.

The Insight first went on sale in Japan last month, where it sells for 1.89 million yen ($19,260). So far, 18,000 have been ordered, according to Honda, and 4,906 were sold and registered in February, making it the top-selling hybrid in Japan for the month. The company has said it hopes to sell 200,000 of the vehicles globally each year, with about 90,000 selling in the U.S. during the first 12 months of sales. By comparison, Toyota sold 241,405 of the Prius models in the U.S. last year.

The down economy could put a dent in Honda’s sales plans, however. The value of used hybrids, an important indicator of demand for the vehicles, has slumped considerably as consumers turn to cheaper options. According to research firm Kelley Blue Book, used hybrid prices are down about 25% since last summer, more than any other category of vehicle, and fell 2.5% in February alone.

And while the Insight measures up pretty well against the Prius and even more expensive hybrids on cost, it still is quite a bit higher than fairly efficient non-hybrid competitors such as the Toyota Yaris ($12,205 starting price) and Nissan Versa ($9,990).

That’s a particularly sensitive point considering the relatively low price of gasoline of late. ‘Demand for fuel efficient vehicles has dropped significantly as more and more consumers base their purchase decision on vehicle transaction price as opposed to fuel economy,’ said Juan Flores, director of vehicle valuation at Kelley Blue Book.

When gas is costly, hybrids can more easily justify their cost differential in gas savings. But with the national average for a gallon of go juice at $1.94 (down from over $4 last summer), that savings payoff take a lot longer.

The Nissan Versa, for example, gets 27 mpg in city driving and 33 mpg on the highway, and it costs $9,810 less than the Insight. At current gas price levels, according to one of the niftiest of the many nifty hybrid cost calculators available online, the Honda Insight, which gets 40 mpg city and 43 highway, would save drivers about $315 a year compared to the Versa based on normal driving. That means it will pay for itself in a mere 31 years, or about three times the expected life of the vehicle.

Consumers clearly don’t base all their car-buying decisions on price alone. If they did, it would be Kia, not Toyota, atop the global sales heap, and BMW and Mercedes-Benz wouldn’t have a leg to stand on.

Still, by framing the Insight’s marketing around rational price concerns rather than emotional hot buttons like saving the planet -- while at the same time not making the vehicle as efficient as the 2009 Prius (48 city/45 highway/46 combined), much less the upcoming 2010 Prius (Toyota said it will get 50 mpg combined) -- Honda seems to be locking its new vehicle into a mathematical computation it can never win.

--Ken Bensinger

Related photo gallery: 2010 Honda Insight

Photo, top: 2010 Honda Insight EX. Credit: Honda Motor Co.

Photo, bottom: 2009 Nissan Versa. Credit: Nissan Motor Co.