Honda’s new Accord hybrid takes on Toyota’s Prius

October 7, 2013, 1:00 PM UTC

FORTUNE — Honda’s new Accord hybrid, appearing in dealer showrooms this month, will grab the attention of shoppers motivated by a desire to save money on gasoline. The new four-door powered by a gas-electric system is the first sedan with an EPA 50 mile-per-gallon rating for city driving.

It’s also the first Honda (HMC) hybrid built in the U.S. and the Japanese automaker’s latest salvo in its vigorous competition with Toyota (TM), whose Prius models have dominated the hybrid segment. The new Accord features “full” hybrid technology, with an electric motor and gasoline-powered engine that can drive the vehicle independently or in tandem.

Honda’s “mild” hybrid technology in previous models “wasn’t able to generate Prius-type fuel economy numbers,” said Bill Visnic, an analyst for “I predict Honda is indeed going to chip away at the Prius with what is an extremely compelling hybrid play with the 2014 Accord Hybrid.”

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Honda and Toyota introduced their first hybrid models in the late 1990s. Honda’s Insight mild hybrid didn’t sell strongly. Toyota’s full hybrid Prius, by contrast, was wildly popular and over subsequent generations and variations became one of the automaker’s top sellers worldwide. U.S. automakers, especially General Motors (GM), were skeptical about hybrids; they developed their own once the success of Prius was impossible to ignore.

“Honda put in all we had,” Koji Ninomiya, chief engineer for the Accord Hybrid, said to reporters. “We did our best, and we ended up at 50 mpg.” The city-highway combined rating is 47 mpg, identical to the combined rating for the Ford (F) Fusion hybrid.

Honda engineers have been working on the new system for about a decade, considering all sorts of approaches and combinations of electric motors, batteries, regenerative braking, and internal combustion engines.

Honda’s hybrid has two electric motors, one gas engine, and can run in three modes: electric-only; a combination of motor and gas-engine, in which the engine charges the battery that keeps an electric motor driving the wheels; and a gas-engine only mode.

The new system uses an Atkinson cycle gasoline engine, which optimizes efficiency at the expense of power by adjusting valve openings. Also in use is a regenerative braking system that sends power to a lithium-ion battery the moment the driver’s foot is lifted from the accelerator — as opposed to the typical regenerative system that starts when the brake is applied.

Due to the space occupied by the battery behind the rear seat, the Accord hybrid’s trunk will offer 12.7 cubic feet of space, versus 15.8 cubic feet in the conventional model.

Starting at just under $30,000, the Accord’s fancier versions will cost up to $35,000 or more, depending on optional equipment. The Prius, which is a smaller vehicle, starts at about $25,000.

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Honda once dominated the automotive market when it came to fuel efficiency and steadily was supplanted by Toyota and others that made competitive strides and closed the gap. One of Toyota’s marketing innovations was to come up with a unique name for its hybrid — Prius — while other manufacturers simply have added “hybrid” to whatever model it’s powering.

The Accord’s phenomenally loyal owner base is likely to pay attention to Honda’s new approach to hybrid, especially if fuel prices spike. At the moment, they’ve moderated a bit to $3.49.9 a gallon at the end of September, from $3.62.3 a month earlier.

But the trend of gasoline prices remains upward — a reality no one likes but one that Honda engineers have addressed forthrightly with the newest Accord.