Needed: A Really Cheap Hybrid (Listening, Honda?)

The path to profitability with hybrid and battery electric cars may not be at the top of the market--as Fisker and Tesla are assuming--but at the bottom. Take a look at the price wars developing between Honda and Toyota over, respectively, the Insight and Prius. And that's only the beginning.

When Honda announced that its mid-sized Insight sedan would open at $19,800, it was a shocker to Toyota, which had not yet announced pricing on the 2010 Prius. Getting into a 2009 model costs $23,375 plus $720 in destination charges. And since the new model is moving slightly upmarket--with standard features such as stability and traction control--it was generally assumed that pricing would stay the same or even increase. Instead, it fell, to $21,000.

That price is somewhat misleading, however. Toyota's Wade Hoyt says the $21,000 car is intended mainly for fleets and will not carry such features as a rear wiper, cruise control, Touch Tracer Display and EV mode (which allows a short batteries-only run). Prius II, the one consumers can get at, starts at $22,000.

But Honda isn't finished making entry-level hybrids. Coming soon is a hybrid version of the popular Fit (called the Jazz in Europe). The Fit Hybrid, confirmed, along with a sporty hybrid based on the CR-Z, by CEO Takeo Fukui (who will step down in June) a year ago, may not be sold in the U.S. But it would be a good, well, fit. "The Fit has great fuel efficiency to begin with, and if you put in a hybrid, it's going to get even better," Fukui said last year. At the time, gas was $4 a gallon, but now the recession is a great reason to make a really fuel-efficient hybrid that is also affordably priced. Hybrids have taken a hit in the marketplace, and their higher prices is one big reason.

A sweet spot in the market for Honda would be around $17,000. The Insight is already the cheapest hybrid on the market, but with the Fit joining a hybrid lineup of Insight and Civic, the company would have all the entry-level bases covered. Just a thought!