The new Honda Insight is smaller than the Toyota Prius, but a compact hybrid drivetrain and battery makes it just as roomy inside. The new Honda Insight hybrid promises to revolutionize the hybrid market by making gas-electric cars affordable. But the five-door hatchback with a rock-bottom price isn't the Prius killer Honda might have hoped for.

Honda isn't saying exactly what the car unveiled today at the Detroit auto show will cost when it rolls into showrooms on April 22 (Earth Day) but it will undercut the Toyota Prius by several thousand dollars. That won't be enough to knock a car that's synonymous with hybrid technology from its pedestal, but the 2010 Insight poses the first credible threat to Toyota's dominance of the hybrid market.

It's widely expected to cost no more than $20,000, and Honda almost certainly will sell every one of the 100,000 Insights destined for North America this year. Analysts say as many as half those sales could be siphoned away from Toyota. The next-generation Prius will debut during the show.

"The Insight has the potential to put the Prius in a world of hurt," says George Peterson, president of industry analysis firm AutoPacific.

But the Insight has more than a great price going for it. With its stellar fuel economy, snappy acceleration and clever interactive dashboard designed to help drivers maximize efficiency, the Insight is the world's first fun hybrid.

The Insight hybrid features Honda's Ecological Drive Assist System, an interactive dashboard display that offers real-time feedback on your driving style to help you maximize efficiency. Honda spent more than two years developing the car, which draws its name from the funky two-seater Insight hybrid that was the first gas-electric vehicle sold in America when it was introduced in 1999. The car never quite caught on, and Honda could only watch as the Prius outsold Honda's hybrids by four to one. Honda discontinued the Insight in 2006 and pulled the plug on the Accord hybrid the following year.

Tired of watching from the sidelines as Toyota dominated the field, the company decided the best way to close the gap was to make hybrids as cheap as they are efficient. "We want to open up the market to consumers who might not have considered hybrids in the past because of price considerations," says company spokesman Sage Marie, noting that although the Prius starts at $22,000, they often go for several thousand more than that when you can find one.

The new Insight builds on the Integrated Motor Assist technology underpinning the Civic hybrid, which remains in Honda's lineup and is slightly larger than the Insight. It sandwiches a 13-horsepower electric motor between the 88-horsepower four-cylinder engine and the continuously variable transmission. The combination delivers 98 horsepower and enough torque to let you accelerate away from a traffic light with a grin.

Honda's system isn't quite as fuel efficient as Toyota's Hybrid Synergy Drive, but with an estimated 40 mpg in the city and 43 on the highway, it's pretty close to the EPA's figures for the 2009 Prius. The compact size and lower cost of Honda's technology offers other advantages though. While smaller than the Prius, the Insight offers almost as much interior room and actually has more cargo room, thanks to a smaller electronic control unit and more efficient 5.75-amphere-hour, 100-volt, nickel-metal hydride battery under the rear seat.

The Insight builds on the Integrated Motor Assist technology underpinning the Civic hybrid, and mates an 88-horsepower four-cylinder engine to a 13-horsepower electric motor driven by a nickel-metal hydride battery. The interior has lots of clever touches – an iPod holder, storage compartments that can be reconfigured about a bazillion ways and, in a stroke of genius, a storage slot under the cargo floor for the retractable cargo cover. Options include a navi system, Bluetooth and iPod integration, though including those will probably bump the price above 20 grand. But the coolest gadget comes standard in every model – the interactive Ecological Drive Assist System.

Eco Assist uses a dashboard display and speedometer backlighting that effectively turn hypermiling – the fine art of maximizing fuel efficiency – into a videogame that coaches you on your driving style. There's also an Econ Mode that decreases throttle sensitivity, reduces air-conditioning demand and pulls a few other under-hood tricks to maximize fuel efficiency.

During a day behind the wheel last month, we managed an impressive 42.4 mpg without even trying. When we pushed the Econ Mode button and used Eco Assist to mind our hypermiling P's and Q's, the Insight returned an amazing 65.6 mpg. That's on par with the best figures we've seen from the Prius.

The irony is the Insight is the first hybrid with the driving dynamics that might encourage you to ignore your inner environmentalist and just have fun. While we didn't drag race a Prius, our seat-of-the-pants impression is the Insight has snappier acceleration, not to mention more responsive steering, better brakes and superior handling. The fully loaded EX version even offers shift paddles mounted on the steering wheel. The Insight isn't as sporty as, say, a Civic Si, but it's by no means a dull car.

Honda has packed a lot into the Insight's small and inexpensive package, and industry analysts say it may well usher in the "new era of affordability" for hybrids that company CEO Takeo Fukui promised last fall. Toyota and Hyundai already have plans to offer gas-electric models in the Insight's price range, industry watchers say, and it's only a matter of time before other automakers follow suit.

"Honda may set a new benchmark for others to shoot for with regard to cost, packaging and content," says Joe Langley, an auto industry analyst with CSM Worldwide. "We should start to see prices come down. This is the first step."

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