Honda's US unit now expects to sell 50,000-60,000 units of the new Insight hybrid, about a third less than originally planned.

Cheap fuel, the economic slump and competition from Toyota's redesigned Prius have undermined demand for the new Honda, Bloomberg News reported.

"I don't think we'll get to 90,000," John Mendel, the company's US executive vice president, was quoted as saying.

Though they are on the way back up, petrol prices in the US have fallen 35% over the past year, hitting demand for fuel-efficient cars, even as the overall market has plunged 37% due to the recession. Toyota has cut the base price of the Prius by US$1,000 to compete with the Insight, Bloomberg noted

"Sales of hybrids have a strong correlation to gasoline prices, especially in the US and Toyota's Prius has had more customers in the past, so it's a tough competition for Honda," said Credit Suisse Securities (Japan) analyst Koji Endo.

In contrast, the Insight has been selling well in Japan, where petrol is double the price, and was top selling model in April, though dislodged by the Prius last month.

Bloomberg said hybrid sales in the US fell 38% to the end of May to 100,337 units but Toyota nonetheless plans to sell 180,000 units of the Prius in the car's first year, matching the model's US volume record reached in 2007. Old-model Prius sales to the end of May were off 46%.

Demand for Insight should pick up later in the year as the recession eases and fuel prices increase, told the news agency.

US dealer inventory of the Japanese-built Insights was "good" given current market conditions and sales could be as high as 4,000 units this month, up from 2,098 in May, he said.