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04 Subaru STi
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Toyota has just announced that it is currently developing a hybrid version of the sub-compact Yaris (known at the Vitz in Japan) to take on Honda in the increasingly diminutive hybrid war.

Honda's launch of the Insight Hybrid was the catalyst in this hybrid war, undercutting the Prius in both size and cost. Honda recently announced that the Insight would cost just under $20,000 when it goes on sale in the U.S - a price that is roughly $2,000 less than the current Prius, and even further away from the upcoming third-generation Prius.

The upcoming Yaris hybrid would have an MSRP under the $19,800 asking price of the Insight.

"We are developing a low-priced hybrid vehicle like Honda’s Insight," Akihiko Otsuka, lead engineer on the third-generation Prius, told Japan's Nikkei newspaper. "We are going to compete by expanding our hybrid-vehicle lineup to smaller hybrids, in the class of the Vitz [sold in Japan] and Yaris."

There is no word on what engine would be used (possibly the 1.3-liter Toyota powerplant found in the iQ) but Toyota is working to bring lithium-ion battery packs to market, rather than the nickel-metal hydride units used in current hybrid systems.

The real issue with the current Yaris platform is the drag coefficient, at 0.29 cd. Aerodynamics are key when designing a hybrid vehicle as every 100th of a percentage point counts for a one percent difference in fuel economy, says Otsuka.

Great efforts were made to achieve a drag coefficient of just 0.25 cd with the upcoming Prius, over the outgoing model's 0.26 cd rating.

In the meantime, we'll have have to wait for Honda to confirm a hybrid version of the Fit … and then maybe a hybrid ride-on lawnmower.

More: Toyota Readies Yaris Hybrid With Honda's Insight In Its Sights on AutoGuide.com
 

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I feel this as breaking news.

Ultimitely something good is comming up to buy.

Hope the performance is fine.

I will definitely want to test ride it.
 

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2013 Scion tC M/T
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I don't know if I like the Yaris here, but the Vitz in Japan is sweet. If Toyota wants to make the car more fuel efficient (hmm-hmm, better body+more aerodynamic=efficiency) just go with the Vitz's design.
 
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