An interesting move by Honda .My assumption here is (Still on that assumption) 5th generation City is better in many aspects in comparison to Yaris . Now if i were Atlas Honda i can look in to this direction .
Keep the 5th generation City (Add on feature Steering control ,CVT transmission in Auto ,Air bags ,Standard Alloy rims) with 2 base models only 1.3 Auto/Manual . (2.4 to 2.8 million)
Launch 7th generation in 1.5 and 1.0 Liter Turbo . (2.8 million to 3.2 million)
What these will do it gives Honda a leverage in multiple segments first they will have a car feature wise competing with low tier segments of Yaris/Upcoming Proton /FAW and other) .Secondly Honda can jump into entry level Corolla 1.6 segment (which was missing earlier due to discontinuation of Civic 1.5/1.6 .Its a bold plan but surely a winning plan .Remember Honda has to compete in compact sedan segment as well