The Honda Fit Hybrid went on sale in Japan last week, and will be offered in Europe early next year. But the company remains indecisive about selling it in the United States. “We haven’t decided on a U.S. launch,” Koichi Kondo, Honda Executive Vice President, said at the Fit’s launch event in Tokyo. “As for the future, it’s open to question. We will carefully be watching the market situation.”

Could Small Hybrids Be Big?

Honda’s uncertainty has been widely reported as a decision not to sell the Fit Hybrid in the United States. Some consumers, including a HybridCars.com visitor named Marty, were disappointed. “Honda has done it again! They always keep the coolest cars away from the U.S. market,” wrote Marty, who dislikes the new Honda Insight, because of its limited space and versatility. On the other hand, the Honda Fit is frequently praised for packing a roomy interior into a small vehicle platform. “I love my ‘07 Honda Fit, but the mpg could be better [with] the 1.3 liter engine paired to the CVT that the rest of the world has on the Honda Jazz/Fit,” wrote Marty. “I have been waiting a long time for a Hybrid Fit and this really just burns me up!”

In Japan, the Hybrid Fit and the Honda Insight get the same mileage ratings. (In the U.S., the Insight is rated at 40 mpg in the city and 43 on the highway.) The price tag for the Honda Fit in Japan starts at about $19,200, which is 30 percent more than the re-styled gas-only version. The hybrid delivers a 20 percent improvement in fuel efficiency compared to the conventional model.

Depends on Gas Prices

Kohei Hitomi, Honda chief engineer for the Fit, said that Americans are probably not willing to pay the hybrid premium for marginal mileage gains. “Basically, the gasoline Fit gets very good mileage as it is,” Hitomi told Automotive News. “I think many Americans would be asking whether it is worth paying extra.”

In 2008, when gas prices spiked to $4 a gallon, Honda gave a green light to the Fit Hybrid for the United States. At the current relatively low price at the pumps, Honda is once again hesitating.

In Japan, where higher gas prices and stronger green car incentives are in place, Honda expects the hybrid version to represent 40 percent of total Fit sales volume. The company is aiming to sell about 5,600 units a month, and already has about 10,000 pre-orders.

If Honda decides against bringing the Fit Hybrid to the United States, then Toyota could be the single automaker offering a compact gas-electric car in America. Toyota is expected to release a compact version of the Prius in the next couple of years. In 2012, Toyota will introduce an all-electric mini-car, about the size of the Scion iQ, to U.S. car buyers. The company said last month it would also produce a hybrid version of the Yaris compact for the European market at its factory in France beginning in 2012.

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A hybrid version will go on sale in Japan in October, and is expected in the U.S. in 2011. As we reported earlier this month, Honda plans to sell the Fit Hybrid in Japan for about $18,600. That’s approximately $3,500 less than the Honda Insight, currently the cheapest hybrid, and about $4,600 more than the gas-powered Fit. Pricing for the Japanese market does not move in sync with U.S. pricing—but a similar strategy in the U.S. would put the base MSRP around $17,000.

Exact mpg will be released at the Paris Motor Show, which will run from September 30 to October 17, but we anticipate a significant step up from the gas-powered version, which is rated at 28 mpg in the city and 35 on the highway. The Fit Hybrid is likely to become the second most fuel-efficient hybrid, right behind the Toyota Prius (51/48 mpg). The auto industry is still figuring out how to rate the fuel economy of plug-in cars, such as the Nissan LEAF and Chevy Volt.

The Fit, marketed as the Jazz in Europe, will use Honda’s IMA system— an 87-horsepower 1.3-liter engine combined with a CVT gearbox—currently found in Honda’s Insight and CR-Z hybrids.

The new Fit/Jazz is updated for 2011—with revised headlights and rear lights, a new front grille, and restyled bumpers and tailgate. Inside, there’s a darker single-color dashboard and blue-lit dials and instruments. The new hybrid is also available with leather trim, the first time this has been available on a Jazz model in Europe.

Though the Fit’s outer shell takes up very little pavement, it yields an unusually large interior space. Total passenger volume is 90.1 cubic feet, which is just a hair short of the larger Honda Civic. It offers more head and legroom up front than competing subcompacts, such as the Nissan Versa and Toyota Yaris.

With so many low-volume luxury hybrids hitting the market in recent years, the introduction of a small affordable high-mpg gas-electric model from Honda is a welcome addition to the hybrid market.

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Honda hasn’t had much luck with its recent hybrids. The Honda Insight and upcoming Honda CR-Z Hybrid coupe fell short of promises to combine a great price with leading fuel economy—or in the case of the CR-Z, with a sporting drive. The Honda Fit Hybrid—coming out this fall in Japan, but no timing yet announced for the U.S.—could be Honda’s chance to finally create a gas-electric winner.

First of all, the conventional Honda Fit platform is a major critical and popular success. It has a smart but playful appearance, and a deceivingly large and versatile five-passenger interior. If Honda can add a hybrid powertrain at a relatively low premium—for a final price well below all the hybrid competition—then the company might have reached the right dollar-per-mpg ratio. The Honda Fit Hybrid’s prospects wouldn’t be hurt if gas prices starting making a rise by the time its delivered, maybe in 2011?

In The Works For A While

HybridCars.com reported was back in 2006 that Honda was planning a hybrid version of the Fit. That news flash was based on an exclusive interview with an unidentified source—but company officials denied the report. “We’re not thinking of a Jazz (Fit) hybrid right now,” said Takeo Fukui, Honda president and CEO, in December 2006. “To us, the Jazz has sufficient fuel efficiency with the current gasoline engine.”

Fukui reversed his story in May 2008 when he told reporters that the spike in crude oil prices convinced Honda that “a Fit hybrid is now starting to make sense.”

On May 26, 2009, Japan’s Nikkei business daily reported that Honda plans to roll out a gas-electric hybrid version of the Fit in Japan in fall 2010—about a year and a half ahead of the original schedule. That timing appears to be on schedule. Despite the global slowdown in auto sales, hybrids are hot sellers in Japan.

Getting More Real

Nikkei reported on June 24, 2010, that the Honda Fit Hybrid will cost around 1.5 million yen, making it the cheapest hybrid in Japan. Loosely translated into U.S. dollars, that’s $16,500—positioned about $4,000 less than the Honda Insight and $2,000 more than the conventional Honda Fit.

Reuters speculated that this could create a price war on hybrids between today’s leading Japanese hybrid makers.

The new hybrid will be based on the Fit and share core gas-electric components—a 1.3-liter inline-four setup with Integrated Motor Assist—with the Insight. Cost-sharing will help with cost-cutting, and gives credence to the idea of a low price point for the Fit Hybrid.

Nikkei added that the Fit Hybrid will able to travel 70 miles per gallon on the Japanese cycle, compare to the conventional Fit’s 56 mpg. In the U.S., the conventional Fit is rated combined city-highway of 31 mpg. So, the optimistic wild guess for Fit Hybrid mileage would be high-40s, maybe even 50 mpg on the highway.

Takanobu Ito, Honda’s president, said in April that he’s pushing his engineers to reinvent their hybrid strategy. He wants the next-generation Honda Insight beat the Toyota Prius’s fuel economy numbers—and to deliver it as soon as possible. The Honda Civic Hybrid, and maybe even the Fit Hybrid, could use lithium ion batteries. And a rework of Honda’s hybrid system could potentially create a technology pathway to plug-in hybrids.

In terms of a total package of design, fuel efficiency, technology, and price, the Honda Fit Hybrid could be the company’s first chance to get it all right.

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Automakers are now searching for the best technical and economic approach to small hybrids. Honda is the single carmaker that has shown an interest in smaller more affordable hybrids—yet the Civic Hybrid and 2010 Honda Insight have had trouble finding customers. In fact, Honda Executive Vice President Koichi Kondo recently told Bloomberg that the 2010 Honda Insight might have compromised too much size in the name of efficiency. The company will soon introduce another small hybrid, the two-seat Honda CR-Z, followed by a gas-electric version of the Honda Fit.

“There are plenty of people who think that the current Fit meets their needs already” with its fuel efficiency, Kondo said. “A hybrid version might seem expensive. Our engineers are really struggling.”

Toyota Tries to Get Small with Hybrids

Toyota is showing off its Toyota FT-CH—the CH stands for compact hybrid—on this year’s auto show circuit. The company has also hinted at a smaller version of the Prius, and plans to unveil the Lexus CT 200h, a premium compact hybrid, at the upcoming Geneva auto show. If Toyota delivers on its promise of more hybrids throughout its entire lineup, at some point it will need to get small.

Hybrids haven’t been big sellers in Europe, but perhaps the small hybrid format is better suited to European drivers. The CT 200h apparently will only be available in Europe, to take on the Audi A1.

For now, we only have a teaser photo of the Lexus CT-200h, a compact luxury concept hybrid.

In a recent interview with Ward’s Auto, Jack Hollis, vice president-Scion, Toyota Motor Sales U.S.A., pretty much ruled out using the Scion brand for small youth-oriented hybrid. Cost is the issue. “We really still feel (hybrids) fit into the Toyota lineup better than the Scion lineup, from a pricing structure,” Hollis said.

Other automakers have been thinking about future small hybrids, including Volkswagen, which showed it New Compact Coupe (NCC) concept at last month’s Detroit auto show. The NCC mates a hybrid powertrain to its direct-injection gasoline engine to yield around 45 mpg. Upcoming electric cars, including the Nissan Leaf and Ford Focus Electric, are also compact.

Volkswagen New Compact Coupe

Global automakers are wrestling with finding the right economics for placing a relatively costly hybrid or electric-drive system into cars that are smaller and more affordable. As long as gas prices are low, the numbers are tricky and the concepts are remaining in research and development labs. Yet, if and when gas prices take a jump, the move to small hybrids that can get 50 or 60 mpg could get big fast.

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HybridCars.com reported in 2006 that Honda was planning a hybrid version of the Fit—based on an exclusive interview with an unnamed inside source—but official company statements denied the report. “We’re not thinking of a Jazz (Fit) hybrid right now,” said Takeo Fukui, Honda president and CEO, in December 2006. “To us, the Jazz has sufficient fuel efficiency with the current gasoline engine.” Fukui told reporters today that the spike in crude oil prices convinced Honda that “a Fit hybrid is now starting to make sense.”

The first new small gasoline-electric hybrid vehicle will have expected annual global sales of 200,000 units per year—approximately 100,000 of which are bound for the North American market. With the two new hybrids, yet to be named, and the Honda Fit and Civic Hybrids, Honda expects the four hybrid vehicles to reach combined annual global sales of approximately 500,000 units.

At one point, Honda had three hybrids on the market: the Honda Insight, Civic Hybrid, and Accord Hybrid. The Insight (lacking in convenience as a two-seater) and the Accord Hybrid (which emphasized performance over efficiency) were canceled due to poor sales.

The first new dedicated hybrid vehicle, due in 2009, will be offered as a 5-door hatchback with seating for five passengers and will employ an exterior design concept that evokes the FCX Clarity fuel cell vehicle. With the new hybrid, Honda is aiming to produce the most affordable hybrid on the market. Fuel economy for the new car is expected to exceed 40 miles per gallon.

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