Japanese carmakers are widely recognized as leading exporters of hybrid cars to the United States. But their key strategic advantage may become their ability to sell hybrid gas-electric vehicles to Japanese consumers.

2010 Honda Insight

The new Honda Insight was Japan’s best selling car in April. When the 2010 Toyota Prius is introduced this month, hybrid sales volume could approach the size of the US market.

In April, Honda sold 10,481 units of the new Honda Insight in Japan—double its monthly sales target—marking the first time a hybrid was Japan’s monthly bestseller, not including minicars. Toyota plans to sell 10,000 Priuses per month in Japan, beginning this month when it introduces the third-generation model. According to incoming President Akio Toyoda, Toyota already has more than 80,000 orders for the Toyota Prius. Toyota sales orders are up by about 20 percent in Japan, with half coming from the new Prius, according to Yoichiro Ichimaru, a senior managing director at Toyota.

These numbers suggest that Japan’s hybrid market is quickly catching up to the American market in terms of size, despite that the fact that Japan’s overall vehicle market is less than half the size of the American market. In 2007, five times as many hybrid gas-electric cars were sold in the United States than in Japan. In 2008, the ratio of US to Japanese hybrid sales was closer to three-fold. Given the fierce battle between the new Honda Insight and the new Toyota Prius for domestic sales, Japan will gain even more ground this year.

The ascendancy of hybrids in Japan and throughout the world will test the commitment of all global automakers and governments aiming to produce more efficient and less polluting cars. While the US government debates various green car incentives—or offers credits for vehicles that won’t be on sale for at least a couple of years—Japan plans to spend about $4 billion this year in government subsidies to spur slowing auto sales and push consumers in a greener direction. More importantly, hefty gas taxes mean that Japanese gas prices are about twice the price at the pump in the US. High gas prices historically are the single biggest factor leading consumers to choose smaller efficient cars.

As the battle intensifies between the Toyota Prius and Honda Insight for Japanese customers, both companies are increasing their commitment to producing more hybrid models and thereby reducing costs with economies of scale. This is creating a solid base of support for expansion of the hybrid market into other global markets—a trend that should be of great concern for those hoping that US automakers will regain their footing, and start to lead the world in production of the next generation of fuel-efficient cars.