Toyota rethinks Prius pricing under shadow of Insight

OYAMA, Japan -- Toyota's chief engineer, Akihiko Otsuka, chose a curvy test-drive course near Mount Fuji to show off the smooth handling of the prototype of the remodeled Prius hybrid, set to reach showrooms in May.

He proudly told reporters about its outstanding mileage — 50 miles per gallon — roof solar panel, collision safety features and how fun it was to drive.

But throughout the recent event at Fuji Speedway, Otsuka was just as intent on stressing how the Prius performed better than the new, hot-selling rival hybrid from Honda, the Insight. But he was surprised at the upstart's price — $2,000 to $4,000 less than the current Prius model.

"It was lower than anything I had expected," he said with a little laugh. "Honda has done a great job."

Welcome to the new price war in hybrid vehicles.

The Insight starts at 1.89 million yen ($19,000) in Japan, and $19,800 in the U.S., where it arrives in showrooms this month.

The current model of the Prius now sells for $22,000 in the U.S. and 2.3 million yen ($23,000) in Japan. The remodeled third-generation Prius is a bigger car with a more powerful engine than the current Prius and would have otherwise been expected to bear a higher price tag.

A hybrid offers savings at the gas pump because of its superior mileage that comes from switching between a gasoline engine and an electric motor. But they tended to be more expensive because of the motor, battery and other extra parts — until the arrival of the Insight.

Otsuka said Toyota is considering pricing the new model lower than the current model, while declining to disclose the price. The stronger yen has made price-slashing difficult in the U.S. But he also said Toyota is well aware it isn't a wise idea to set the U.S. price too much higher than the Japan price.