Invasion of the Hybrids

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But no company plans to have just one offering, and hybrid versions of vehicles such as the Murano SUV, Sentra, and some of Nissan's Infiniti models are widely expected to follow.

Honda has hybrid versions of its Accord and Civic. The company was widely expected to add hybrid vehicles throughout the rest of its lineup, extending the technology to its Acura division. But Takeo Fukui, Honda's president and CEO, says the company is dimming its hybrid plans.

"There are better ways to achieve fuel efficiency than hybrids, which are really only effective in city driving with lots of stop and go," says Fukui. Honda, for example, says it will increase the fuel efficiency of the 6-cylinder engines found in several models -- including the Odyssey minivan, Pilot SUV, and Acura TL -- by 11% to 13%.

And Honda said it will launch a 4-cylinder diesel engine for its small cars by 2010. By then, U.S. diesel fuel will have turned into the cleaner version European cars drink, so U.S. drivers will realize the fuel-efficiency gains provided by diesel -- without the tailpipe-emission trade-off.

PRIUS IN THE LEAD.

Even Hyundai may get in the game. By yearend, the Korean auto maker will sell a hybrid Accent compact in its home market. Hyundai already has developed the hybrid system on its own, which is some feat considering that many larger companies -- such as Nissan and BMW -- have relied on Toyota and GM, respectively, to develop a system.

Hyundai wants to market its system in the U.S., but company executives haven't decided which model would be best, says John Krafcik, vice-president for product development and strategic planning for Hyundai Motor America. "We'll have one," Krafcik says. "The question is which platform."

Toyota is the leader in hybrid technology, with its Prius as the best-selling offering in the segment to date. Toyota also is selling hybrid versions of its Highlander SUV and Lexus RX. The company has announced plans to offer hybrid versions of all its Toyota and Lexus models, and specifically announced a hybrid version of its flagship luxury car, the LS460, which made its debut at the Detroit auto show. "We have been the leaders in this technology, and we don't intend to give that up," says Jim Press, Toyota's top U.S. executive.

Toyota took the wraps off the 2007 Camry here this week, a redesign of America's best-selling car, which will have a hybrid version. The Camry hybrid gets 43 miles per gallon in city driving and 37 miles per gallon on the highway, and the company expects it to represent about 15%, or around 60,000 units, of sales a year.

Just a few years ago, as Toyota was launching the Prius and Honda was launching its small Insight hybrid, other carmakers, especially U.S. and German companies, were unenthusiastic about the technology. Engineers view the dual propulsion system as inefficient, and prefer to channel resources into hydrogen-powered vehicles, which many view as the ultimate replacement to gasoline-powered internal combustion engines.

TAX INCENTIVE.

But the future of hydrogen systems is so sketchy, the costs still so high, and the infrastructure (hydrogen refueling systems and stations) still so far away, that there has been a rush to hybrids. "If you aren't committed to hybrids, then you're seen as being a technological laggard and environmentally careless," says marketing consultant Dennis Keene. Adds Ford Executive Vice-President Mark Fields: "Toyota changed the whole hybrid agenda, but we're a fast follower on this technology and will have a lot to say about the hybrid future in the U.S."

Hybrid systems have gotten much publicity about underdelivering the gas mileage that consumers expect. The Prius, for example, doesn't achieve its maximum fuel efficiency unless the driver spends enough time in stop-and-go traffic to let the electric-only part of the system move the car.

But consumer interest remains high, especially after last year's spike in gas prices. The energy bill President Bush signed last year helps hybrid sales as well. Consumers could slash tax bills by $1,700 to $3,000 depending on the hybrid model they buy, starting this month with a new tax credit. The old $2,000 tax deduction for hybrids was set to go down to just $500 this year before auto makers prevailed on the White House to goose the consumer incentive.

Whether people buy hybrids for fuel economy or fashion, they'll find plenty of choices on the market.

Welch is BusinessWeek's Detroit bureau chief. Kiley is BusinessWeek's Marketing editor in New York