Toyota's new third-generation Prius hybrid has won the Japan Car of the Year prize. The award, timed to coincide with the Tokyo Motor Show, was made in recognition of the latest model's advances in performance and fuel economy.

Toyota reports that the Prius has been the best selling model in Japan for the last five months – 31,000 units were sold there in September alone – and it is becoming more popular in other markets too. Toyota's early lead in hybrids appears to be paying off but other manufacturers are hitting back hard. Honda's Insight, for example, offers a less sophisticated hybrid drive-train in a similarly-sized car but at a much lower price, while the European manufacturers are offering advanced diesel models that match or better hybrids for "real world" fuel consumption.

Apart from the incremental improvements embodied in today's hybrid cars such as the third-generation Prius, the next big step for the market will be the adoption of plug-in technology, which will allow hybrids to run for a much larger proportion of any journey solely on electric power, with corresponding benefits for emissions and fuel economy – depending, of course, on the fuel used at the power station.

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