Toyota Prius: Premium, Popular, Pricey

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However, one disadvantage of buying a Prius and other Toyota hybrids is that they're no longer eligible for federal tax credits, which phase out once a company sells a certain number. Tax credits for Honda hybrids are starting to phase out, too, but you'll qualify for a $1,050 credit if you buy a Civic Hybrid before June 30, and $650 from July 1 through the end of the year.

Without federal tax credits, the Prius costs a lot more than conventionally powered compact cars. A mid-range '09 Corolla LE with automatic transmission is rated to get an average of 30 mpg and starts at $17,310; that's $6,225 less than a mid-range Prius.

At the current price of regular gasoline—and assuming you drive 15,000 miles annually—the government figures it will only cost you $1,282 per year to gas up a Prius, $686 less than a Corolla LE. But making up the price difference will still take nine years in the unlikely event gas prices remain at around $4 per gallon, seven years if prices rise to $5 per gallon, and a little under six years at $6 per gallon. (You can make your own calculations at fueleconomy.gov).

Behind the Wheel

If you're never been in a Prius, the first thing to know is that it isn't the bare-bones econobox many people expect. Even the entry model comes with such features as keyless entry, a tilt steering wheel, full power accessories, and a six-speaker sound system with CD player. The mid-range model adds cruise control and heated outside mirrors, while the Touring has a sportier suspension, 16-inch wheels (vs. 15-inchers in the other models), and xenon headlights.

You can also upgrade a Prius with many of the add-ons you find on conventional models, from a premium sound system to leather seats, A Touring model with the most expensive premium package and satellite radio tops $29,000.

All versions of the Prius have a cool hybrid system display that shows you the mileage you're getting and how power is being generated at any given moment. This is far more important than you might think because many owners become obsessed with figuring out ways to eke out better mileage. They often report their mileage goes up steadily as they gain experience with the car.

The Prius is actually slightly smaller than the Civic, but it feels roomier inside. That's partly because it's two-and-a-half inches taller. Front-seat leg, head, and shoulder space is about the same as in the Honda, but the Prius has noticeably more rear-seat legroom. Luggage space behind the Prius' rear seats is 14.4 cu. ft., nearly 40% more than in the Civic's trunk. The Prius' rear seats also fold down, creating a large hauling space in back.

The Prius' powerplant combines a 76-hp gasoline engine and an electric motor that generates the equivalent of 67 hp (a second electric motor helps recharge the batteries). Combined peak horsepower is 110. Like the Civic Hybrid, the Prius has a continuously variable transmission that accelerates in one ongoing skein. The lack of gear shifts (and lack of a manual function that would let you do the shifting yourself if you wanted to) takes some getting used to, but CVTs are more efficient than conventional transmissions.

As you might expect, the Prius is poky, taking more than 10 seconds to accelerate from zero to 60 mph. Passing power on the highway is adequate, but far from impressive. The Touring Prius that I test-drove is supposed to be the sporty version, but it drove like a relatively clunky compact sedan to me. The Honda Civic Hybrid is quicker, feels tighter, and handles better.

Both the Prius and Civic have a tight turning radius that make them a breeze to park. However, rearward visibility out of the Prius' two-tier rear window is poor. I'd recommend getting the optional rearview camera, which has excellent resolution and makes backing up in the Prius far less hazardous.

Buy It or Bag It?

In purely financial terms, the Prius makes the most sense for people who drive a lot more than 15,000 miles annually or tend to keep their cars for many years. If handling is a priority, the Civic Hybrid is a better bet.

If you want a roomier hybrid, the Nissan Altima is an excellent alternative. Its base price of a little over $26,000 is higher, and its 34-mpg average fuel economy is much lower than that of the Prius. But the Altima Hybrid also qualifies for a $2,350 federal tax credit, and it's very quick and fun to drive. Unfortunately, it's only sold in the eight states with the toughest emissions standards: California, New York, New Jersey, Connecticut, Rhode Island, Massachusetts, Vermont, and Maine.

If you can wait, a redesigned, third-generation Prius is due out late next year as a 2010 model. However, there's no guarantee the 2010 Prius will have the distinctive styling that lets everyone know you're doing the right thing for the environment.

Click through BusinessWeek.com's slide show to see more of the 2008 Toyota Prius.

Thane Peterson reviews cars for BusinessWeek.com.