Recently, Japanese auto giant Honda Motor Co. (HMC) revealed its plan to introduce two new gas-electric hybrid vehicles in 2010 in Japan. The company will offer the CR-Z hybrid sports car in February next year, followed by a hybrid version of its Fit compact by the end of next year.

The CR-Z has also been set for an international roll-out, but this has not yet been confirmed for the Fit.

The new hybrid lineup by Honda is expected to deliver a serious blow to its rival Toyota Motors (TM) in low-emission vehicles. The hybrid version of Fit will be cheaper than the Toyota Prius, on the back of its low-cost single-motor hybrid drive used in Honda’s Insight hybrid.

Previously, Honda Insight had lost its luster to Toyota’s third generation Prius in terms of fuel efficiency. Prius 2010 clocks 51 mpg in the city and 48 mpg on the highway, while Insight logs 40 mpg city and 43 mpg highway.

Honda plans to utilize more local resources for the cars it sells in emerging markets such as China and India, and reduce the number of domestic-only models it sells in Japan in order to lower cost and brace itself for competition.

Honda aims to tap the huge potential offered by the global market for hybrids. Despite being costlier than the non-hybrid vehicles, hybrids are likely to become a smart choice for consumers in the future.

A recent study showed that, taking into account several factors such as maintenance, repairs and retained value, hybrid vehicles generate savings that more than offset the price difference with the non-hybrid ones.
 
Honda intends to increase hybrid sales to 500,000 vehicles per year early in the next decade; this is equivalent to 15% of its current sales volume. The company has several projects in its hybrid line-up including clean diesel systems, hydrogen fuel-cell cars and a powerful hybrid drive for larger vehicles run on two electric motors alongside the petrol engine.
 
All these would surely help Honda to perform better amidst the slowing automotive sales. In fiscal 2009, Honda’s profit declined by 77% to $1.4 billion.
 
We continue to recommend HMC as Hold with a six-month target price of $27.00.
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