Pricing the Prius: A Delicate Balancing Act

(MoneyWatch) 

ORLANDO, FLORIDA--More than 2,000 engineers under the direction of Akihiko Otsuka worked for four years on the new Toyota Prius. The hybrid drivetrain, featuring a 1.8-liter engine working on an Atkinson Cycle, is 90 percent new.

"We wanted Prius to make a difference and change the way people think about transportation, the roles cars play in the environment and what people could expect from their cars in the future," said Ed La Rocque, Toyota national small car manager.

Of course, car execs always talk about lofty goals, but what they really want to do is sell cars. And until hybrid sales fell through the floor recently, the Prius has been a solid home run. Toyota has sold 1.2 million Priuses worldwide since introduction of the first-generation model in 2000. A whopping 700,000 of those sales were in the U.S.

The third-gen car is definitely an improvement in many ways. In addition to 50 mpg combined, it offers a smidgeon more power, more interior and cargo space, and a raft of high-tech features, from intelligent cruise control to a solar panel with a mission to cool the interior on hot days.

Toyota hopes to sell 100,000 in the remainder of 2009 (the car goes on assembly lines in April) and 180,000 for the first full year in 2010. The success of that strategy probably depends to a degree on price, especially considering fierce competition from a sub-$20,000 Prius fighter called the Honda Insight.

And Toyota has larded on so many neat standard features that it may not be able to hold the line at $22,000. But we know one thing: in 2009, price matters. A lot.