Honda has announced plans to launch a hybrid hatchback that will be smaller and cheaper than its existing Civic hybrid sedan.
Meanwhile Toyota is due to unveil a larger version of its successful Prius, which it has kept under wraps until now to avoid dampening sales of its existing offering.
Dick Colliver, executive vice-president of Honda's US unit, yesterday said: "The challenge, especially with small cars, is to bring the price down to where more people can afford it. And this is our goal for this new hybrid model ... to make it affordable to a new generation of car buyers."
Colliver said that Honda aimed to sell 100,000 of the new vehicles a year in North America.
Sales of the Civic hybrid in the US reached only a third of that level last year, although demand last month was 38% higher than in the same month last year. Honda aims to sell 200,000 of the hybrid model a year globally.
Toyota has had more success with the Prius, selling 181,200 in the US last year and another 106,000 in the first six months of this year.