Honda's new hybrid throws down the gauntlet to Toyota PHOENIX — Oil prices are going up. As I sit here writing about Honda's new hybrid, the 2010 Insight, on the desk next to me is the front page of The New York Times declaring that major oil and gas projects now being delayed are setting the stage for "another surge in oil prices once the global economy recovers."
So a spike in the price of oil is really just a matter of time. For Honda right now, the price of oil is not so much an issue of time, but of timing.
That is, will pump prices go back up to the levels of last May/June that looked like they would make the launch of the gas-stingy 2010 Insight hybrid a smashing success?
In the early summer, with oil pushing $140 (U.S.) a barrel and apparently headed to $200 with a bullet — as predicted by Jeff Rubin at CIBC World Markets, among others — a clean emissions fuel sipper like the Insight looked like a slam-dunk winner.
Yet as the Times points out, "oil markets have had their sharpest-ever spikes and their steepest drops this year, all within a few months."
Indeed, by September, with oil prices sliding dramatically and pickup sales actually picking up, Honda nonetheless used the Paris motor show for the worldwide debut of a "concept" version of its new five-door gasoline-electric hatchback.
This hybrid, said Honda officials not quite willing to admit to past mistakes, would challenge rival Toyota's success with the Prius hybrid hatchback ($27,400). The new Honda would be far less expensive than the Prius — perhaps as low as $19,000 — and would thus set new standards in hybrid affordability.
By November, Honda was again teasing the public with more details about the Insight at the Los Angeles auto show. The company said its Insight would not only be cheaper than any other hybrid car on the market it would also become an almost instant best-seller.
The low price, said Honda types, would make it possible to sell 200,000 of the cars each year in Japan, Europe and North America. Toyota has yet to sell 200,000 Prius cars in a single year and it's the world's hybrid best seller.
Honda plans to introduce hybrid versions of other models, too. One is a sporty compact car, a 2+2 hatchback based on the CR-Z concept first shown a year ago at the Tokyo motor show.
The longer-term goal is to sell 500,000 hybrids a year world-wide by early next decade. Toyota, meanwhile, aims to reach annual sales of one million hybrids globally by the same time.
Thankfully, the Insight tease will be officially over by the second week of January. That's when Honda — one of the most secretive car companies in the world — will finally give us the straight goods on the Insight.
But why wait? After all, I am here in Phoenix to drive the Insight and get all the details first-hand. Unfortunately, in return for the chance to drive the car, I've agreed not to share what I've learned here in Arizona until Jan. 11. This is so that Honda can do a one-time global unveiling at the Detroit auto show.
But there is more than one way to tell a story. Using other sources, I've already pieced together almost all you need to know about the Insight.
The price will be in the $20,000-range. Not the mid-$20,000s and not the high-$20,000s, either. Take that, Prius. (For the record, Toyota will unveil a new version of the Prius in January at the Detroit show, though the likelihood of a major price drop is not great.)
Honda has reined in costs for the 2010 Insight by using Honda's existing Integrated Motor Assist hybrid powertrain, though in a smaller package and with lighter components.
Like the Civic Hybrid, the Insight's system combines an electric motor with a 1.3-litre VTEC engine. Its main power source, a highly efficient, lightweight gasoline engine, will be assisted by battery power.
Fuel economy should be in the same range as the Civic Hybrid ($26,350): 4.7 litres/100 km city/4.3 highway, versus 4.0 city/4.2 highway for the Prius.
Toyota's "full" hybrid setup is more fuel-efficient because it more thoroughly weds a battery-powered vehicle with a gasoline engine. The Prius is able to run only on batteries, only on gas, or some combination of the two thanks to smart electronic controls.
As the fuel-economy numbers indicate, Toyota's approach delivers unsurpassed fuel economy in city driving where battery power comes into play for stop-and-go driving. At slower speeds, say crawling through traffic, the Civic Hybrid cannot run on battery power alone and that will be true for the 2010 Insight.
On the other hand, like the Prius, the Insight only will be available as a hybrid. That will appeal to buyers who like to tout their eco-friendly credentials as they commute to work or pull up to the red carpet at the Oscars.
By contrast, the hybrid versions of the Honda Civic, Ford Escape, upcoming Ford Fusion and Toyota Highlander look virtually identical to their gasoline-powered counterparts. All that identifies them as hybrids are some discrete badges saying "hybrid."
So the Insight's ace in the whole, above everything else, is price, rather than image.
My burning question to Honda Canada executive vice-president Jerry Chenkin boils down to this: If oil prices don't go back up by April, if gas stays cheap, isn't the Insight in danger of being a giant and costly flop?
"No. If the price of gas were $1 a litre or 50 cents a litre or $2.00 a litre, Honda would still be developing this product — these products — because it is part of the culture," says Chenkin, a 35-year veteran of the auto industry. "It [the Insight] is not built to combat the price of gas; it's built to preserve the planet."
It's true that Honda does have the most fuel-efficient fleet in North America and that fact bolsters Honda's case as a "green" auto maker. During the glory days of big pickups and SUVs, Honda refused to join the party — although Honda does make a large SUV-like vehicle, the Pilot, and a big minivan, the Odyssey, and a mid-size pickup, the Ridgeline.
This year, Honda's big product introduction was the 2009 Fit ($14,980), which is rated at a healthy if not hybrid-like 7.2 L/100 km city/5.7 highway. The quirky little hatchback is doing well; Chenkin anticipates selling perhaps 20,000 Fits next year in Canada.
Chenkin insists that Honda is a philosophy-driven company and that's why Honda is pushing ahead with the Insight regardless of fuel prices. That same philosophy prevented Honda from pressing ahead with large SUVs and trucks, even when they were big sellers. Despite pressure from dealers, Honda never went ahead with a V-8 engine, either.
"Toyota went in that direction, not us," says an obviously competitive Chenkin.
The point Chenkin and other Honda officials want to make is that the Insight should register with a public familiar with Honda's approach to auto making. That includes a reputation for reliability and handling, not just fuel efficiency.
"Honda's cars seem to have more personality than Toyota's," said Aaron Bragman, an analyst with the research firm Global Insight in Troy, Mich. "Their cars are enjoyable to drive, and not just appliances."
Yes, but Toyota's success with hybrids, and Honda's stumbles with them, clearly grate on Honda officials. The Civic Hybrid barely registers with the public and the Accord Hybrid was cancelled due to an utter lack of interest.
Meanwhile, Toyota's Prius is the runaway leader in the category and Toyota has a handful of other hybrids in its lineup, too.
With the Insight, Honda is issuing its challenge to the Toyota in general and the Prius in particular. In a nutshell, Honda is committed to taking a leadership role in hybrid technology.
"This new Insight will break new ground by providing an affordable hybrid to an expanded number of customers craving great fuel economy and great value," said Takeo Fukui, Honda's CEO, in Paris.
In the end, the picture that emerges of Honda is of a stubborn, go-it-alone auto maker that is determined to learn from its mistakes, and chart its own course. Thus, the Insight concept is a Prius look-alike, but Honda's hybrid technology is vastly different and, in a way, more elegantly simple and highly efficient than Toyota's or Ford's or GM's.
Honda officials argue that its hybrid technology is cost-efficient and, in small commuter cars, it is ideal for squeezing out fuel economy gains and lower emissions in stop-and-go city driving.
Regenerative braking, meanwhile, recharges the onboard battery in all that rush-hour driving.
In a nutshell, Honda wants to sell a fleet of smaller hybrids with smaller sticker prices. The idea is to make hybrid cars mainstream by lowering the price to the point where the fuel economy savings more than offset the price premium.
In a nutshell, Honda wants to sell a fleet of smaller hybrids with smaller sticker prices. The idea is to make hybrid cars mainstream by lowering the price to the point where the fuel economy savings more than offset the price premium.
Cost is one reason why Honda is not pursuing — for now, at least — a pure electric vehicle or plug-in hybrid. Electric cars make no sense until lightweight and affordable lithium ion batteries are available, company officials say.
But Honda may be close to rethinking its electric car stance, having finally inked a partnership with a lithium-ion battery supplier, GS Yuasa, that will manufacture next-generation lithium-ion batteries for Honda's gasoline-electric hybrid vehicles.
Lithium-ion batteries are lighter and more powerful than the nickel-metal hydride batteries used in the current Prius, Civic Hybrid and 2010 Insight, and thus they are seen as the next big advancement in electric cars and hybrids.
This latest move is another signal that Honda plans to be competitive despite a global recession and tight credit that is strangling demand for new vehicles and hurting profitability even at lean, efficient auto makers such as Honda.
Make no mistake, these are challenging times. Honda, Japan's second biggest automaker, recently cut its annual operating profit forecast by two-thirds.
What is most interesting is Honda's response to events. The company has gone into full crisis mode, with a long-term plan for recovery that recognizes oil prices will eventually go back up — and dramatically.
In prepared remarks in Japan last week, CEO Fukui said that Honda will fully concentrate its resources on the development of fuel-efficient products. The keys to achieve this goal are advancements of electromotive technologies including hybrid models as well as motorcycles and small cars.
So even as Honda is cutting spending on everything from Formula One racing (Honda is out of it) to senior executive pay (slashed by 10 per cent), the company is focusing on clean and fuel-efficient technologies.
Oil prices are going up and when they do, Honda plans to be there offering more than just one Insight hybrid.
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