TORONTO -- The race for leadership in offering fuel-efficient hybrid vehicles will kick into a higher gear this week when Toyota Motor Corp. starts selling the second generation of its Prius sedan in the U.S. market.

At the moment, it's not much of a race at all, because only Toyota and rival Honda Motor Co. Ltd. are offering hybrid vehicles for sale to retail consumers.

But other auto makers are rushing to the starting line of the race as quickly as they can, as the auto industry seeks ways to offer more fuel-efficient and environmentally friendly vehicles.

"Toyota is way in the lead, Honda's second and everybody else is a long way back," said industry consultant William Pochiluk, president of AutomotiveCompass.com in Westchester, Pa.

Simply put, hybrid electric vehicles are a combination of a traditional internal combustion engine and an electric power supply. The electric motors run the vehicle when it's stopped or moving slowly. Braking also helps generate electrical power.

The combination means the vehicle is less reliant on the internal combustion engine, so it uses less fuel and therefore emits fewer pollutants.

One of the misconceptions about hybrids is that they need to be plugged in, as did General Motors Corp.'s completely electric vehicle that was sold in California in the late 1990s.

Consumers still must be educated about how hybrids operate and their advantages over traditional vehicles, said Jim Miller, vice-president of corporate and government affairs for Honda Canada Inc., which offers the Insight two-seater hybrid and a hybrid version of its Civic compact, which, in its internal combustion configuration, is the best-selling passenger car in Canada.

Honda has sold 359 Insight models since that car went on sale in March, 2000, and 456 Civic hybrids since they were introduced in Canada in May, 2002.

Those numbers are slightly below expectations, Mr. Miller said.

"People won't spend additional money to go green," he said, as one explanation for why the hybrids are not selling as well as expected. "People aren't going to pay a premium."

The Civic hybrid carries a manufacturer's suggested retail price of $28,500. The base Civic sedan model with a standard transmission fetches $16,100.

One of the points Toyota Canada Inc. will make about the second-generation Prius is that Canadians won't have to pay a premium. The new Prius is larger than the version it replaces and is priced at $29,900, which is just $400 more than the average transaction price of a Camry sedan.

That price, combined with a $1,000 tax credit, means prices of the two vehicles are roughly equal, Toyota officials say. However, the hybrid offers $500 in savings on fuel costs in the first year.

"This is a key model for us to tell the customers we are [confident] with this concept for the future," said Kenji Tomikawa, president of Toyota Canada.

Toyota sold about 10 of the old Prius models a month. Mr. Tomikawa hopes that will leap to 50 to 100 a month once the new model goes on sale in Canada late in November. Hybrids were originally seen as just an interim step on the way to fuel-cell-powered vehicles, Mr. Pochiluk said, but on the way, the internal combustion engine got better.

"As it gets better, by definition, hybrids get better."

And the companies with a leg up on their competitors in hybrids will likely also lead the way when fuel-cell vehicles -- which will almost certainly be powered by hydrogen -- become the next big thing, some time around 2020.

Fuel-cell vehicles will use some of the components now used in hybrids, such as batteries, electrical systems and electric motors, Ron Tadross, auto analyst at Banc of America Securities, said in a recent report.

They "will also increase awareness of alternative fuel-cell vehicles," he added.

GM, the world's largest auto maker, has been showing off fuel-cell-powered and hybrid vehicles for several months, but doesn't have one available for retail sale yet.

That will change later in the 2004 model year, said Michael Grimaldi, president of General Motors of Canada Ltd.

GM will start with a hybrid-powered pickup truck this model year and follow that in later years with two hybrid crossover utility vehicles (CUV) and a hybrid version of the Malibu mid-sized sedan.

"By offering a pickup truck, a crossover sport utility, a mid-sized sedan, a small sport utility, in these four products, we're giving the customer a potential opportunity to try hybrids in different vehicle configurations," Mr. Grimaldi said.

The Saturn Vue, a CUV that will follow the hybrid pickup, will offer 50 per cent better fuel economy than conventional versions of that model, he said.

The key, he said, is to make sure that drivers notice no difference in performance between hybrids and vehicles they're accustomed to now.

"If the customer experiences a degradation in terms of performance or functionality, you've taken a step back."

Mr. Grimaldi said once all the GM vehicles are on the road, it will offer the broadest array of hybrid vehicles.

But the two companies with hybrids already on the market are not standing still.

Mr. Tomikawa of Toyota said the RX330 sport utility vehicle built for his company's luxury Lexus division will be available about a year from now and other models will follow.

Honda's Mr. Miller said that auto maker will offer another hybrid model next year. It will offer better gas mileage and "in a category where gas mileage will probably be more noticeable," he said. That comment points to an SUV, but Mr. Miller would not confirm which segment the vehicle will be in.

DaimlerChrysler AG and Ford Motor Co. are lagging, although they have both made strategic investments in fuel-cell technology by buying stakes in Burnaby, B.C.-based Ballard Power Systems Inc., which is hoping to set the standard for fuel cells.

Ford is scheduled to have a hybrid Escape SUV available for fleet buyers later this year, said Ford Motor Co. of Canada Ltd. spokesman Chris Banks.

The Chrysler group has announced plans to sell a hybrid version of its Ram pickup truck, but has not said when it will be available.

All this activity should jump-start sales of hybrid vehicles, consulting firm J.D. Power and Associates said in a study released earlier this year. It forecasts that sales in the U.S. market will surge to 500,000 units by 2008, from just 54,000 vehicles this year.

"The biggest limiting factor on sales is that until now, the hybrid engine option has been offered only in compact cars," Walter McManus, Power's executive director of global forecasting, said in a statement. "That's about to change and when it does, we'll see sales increase dramatically."