May 18 (Bloomberg) -- Toyota Motor Corp. will begin selling a new version of the Prius, the world’s bestselling hybrid car, as it battles rising competition from Honda Motor Co.’s Insight and plunging global vehicle demand.
The car goes on sale in Japan today after the Insight, introduced in February, became the first hybrid to top the nation’s monthly auto sales excluding minicars. More than 1 million Prius cars have been sold worldwide since the vehicle entered the market in 1997.
Toyota, expecting its second straight loss, aims to boost hybrid sales to counter collapsing demand for pick-up trucks that have 15-times larger profits. Japan and other countries may help, as they are offering drivers subsidies or tax breaks on fuel-efficient vehicles to help revive tumbling auto sales.
Akio Toyoda, the next president of Japanese auto giant Toyota Motor, introduces the third-generation "Prius" during a press conference in Tokyo on May 18, 2009. Toyota started selling the new hybrid vehicle, which achieves a world-leading fuel efficiency of 38.0 km per litre, across Japan on May 18.
"Incentives provided by governments around the world will create a green car boom," said Masayuki Kubota, who oversees about $1.9 billion at Daiwa SB Investments Ltd. Still, "profit per vehicle will certainly drop."
Toyota is slated to unveil its sales target and other details about the Prius, the third version, at 1 p.m. in Tokyo.
The automaker, based in Toyota City, Japan, has probably already received more than 60,000 orders for the new Prius, which will be priced at about 2.05 million yen ($22,000), said Koji Endo, an analyst at Credit Suisse Securities (Japan) Ltd.
In comparison, the Insight costs between 1.89 million yen and 2.21 million yen. Honda in April sold 10,481 Insights, more than double its monthly sales target of 5,000. Toyota’s previous Prius was priced between 2.33 million and 3.34 million yen.
Toyota vs. Honda
Toyota aims to introduce four new gasoline-electric hybrid models in Japan and three overseas by the end of March. It also has plans for a low-cost hybrid, smaller and cheaper than the Prius, Akihiko Otsuka, the new Prius’s chief engineer, said in February. It isn’t likely to appear for three or four years, he added. Honda is introducing a hybrid version of the Fit compact car, smaller than the Insight, sometime after 2010.
"With more and more small cars crowding the market, a price war is inevitable," said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets. "Hybrids don’t make that much money and may become a niche market."
With the Fit, Honda will have four hybrid cars in its lineup, including the current Civic hybrid and the planned CR-Z sports coupe. Toyota will have 14 passenger and commercial hybrid models, including the four to be introduced this year.
Profit Margins
Toyota earns about 100,000 yen in operating profit on the sale of one Prius. That’s 7 percent of the profit it makes on the sale of a Tundra pickup truck, according to Endo.
The automaker, which is slashing costs by at least 800 billion yen this year, cut production-related costs for the new Prius by 30 percent, compared with the previous version, President Katsuaki Watanabe said when Toyota released its fiscal year earnings on May 8.
Toyota expects global sales to fall by 1.067 million vehicles to 6.5 million in the year ending March 31. Lower sales volume and a less-profitable model mix will cut operating profit by 800 billion yen in the year ending March 31 from the previous year, Toyota said. The company, which posted its first annual loss in 59 years last year, is predicting another loss in the year ending March.
Plunging vehicles sales have prompted countries including Germany, France, China and Japan to offer government incentives to help revive auto sales and meet tighter carbon-emission goals.
Japan plans to spend 370 billion yen to subsidize purchases of new, fuel-efficient vehicles to halt a 31 percent slide in vehicle sales this year through April.
"It’s not easy to persuade consumers to buy a new car at present," said Daiwa’s Kubota, "Automakers that can provide green cars will be the winners."
Japanese Prime Minister Taro Aso (5th L) smiles with children next to Toyota's new hybrid vehicle, the "Prius", at Aso's Liberal Democratic Party (LDP) headquarters in Tokyo on April 19, 2009 to promote eco-friendly cars. Aso announced an economic stimulus package on March 31, with the government to offer subsidies for purchasers of energy-saving vehicles
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