Within days of unveiling the Insight hybrid concept at last year’s Paris Motor Show, Honda CEO Takeo Fukui boasted that the production version would arrive on the market priced below $20,000. He was spot on as the new Insight hybrid is currently on sale from $19,800, undercutting the current Toyota Prius which is listed at $21,500.

However, Toyota has now unveiled a bigger, more powerful, better equipped, and most importantly, more fuel-efficient, third-generation Prius, and although pricing details are yet to be revealed the new 2010 model will almost certainly be more expensive than the outgoing one.

To overcome this problem - at least in Japan - Toyota will reduce the price of the current Prius to match that of the Honda Insight and allow the third-generation Prius to sit at a higher price point in an effort to boost profit. The information comes from Toyota president Katsuaki Watanabe, who explained that since the cars have different size engines – 1.5L and 1.8L – demand for the two different models should “co-exist”. Watanabe refused to say if the same practice would be used for other markets, but according to Reuters Toyota execs in the U.S. and Europe have said the current model will be discontinued when the new one comes in.

Selling more than one version of the Prius would fit in with Toyota’s desire to possibly launch a family of Prius models instead of the single car. Furthermore, it would also pave the way for the introduction of a more expensive plug-in hybrid version of the Prius, which Toyota is expected to launch next year.

The outgoing Prius has a fuel-economy rating of 46mpg, the new 2010 model is claimed to return 50mpg (our own tests have shown it to actually be much higher in some circumstances), while the new Honda Insight has been EPA rated 40mpg in the city and 43mpg on the highway. How this will affect the mind of buyers is still to be seen given that the all-new Insight would be competing with a car that is essentially six years old.