Petrol - still a viable option!
May 21, 2008 – 10:54 am by Amit Joshi
Fuel prices are soaring sky high and there seems to be very little respite in store for us in the future. The quality of diesel engines has improved significantly. The big question that weighs us down when we look for a car for ourselves is whether we should opt for a diesel vehicle or stick to a petrol. Let me run you through some very interesting facts that may help you make up your mind.
Let us for the time being concentrate on the financial aspect alone. Throughout this article we will require a lot of factual data for which we will use average numbers. When you
compare the prices of a petrol and diesel variant of a car, you notice that you have to pay a high markup of about Rs 100,000 for the diesel version.
Most car buyers today purchase a car with the help of a car loan with the most popular tenure being that of 60 months or five years. So, for all the calculations here, let us assume the loan’s tenure as five years. When you opt for the diesel variant of a car, you end up paying at least Rs 100,000 more as mentioned earlier. This amounts to an additional loan amount of Rs 100,000 for the tenure of five years. Interest rates for car loans may vary from provider to provider. Let us assume an interest rate of 11%. So, the interest which you pay on the additional Rs 100,000 for five years at 11% amounts to Rs 55,000. The value of a car depreciates with age. Let us assume the rate of depreciation to be equal to 20% per year.
Now our difference amount (Rs 100,000) will also depreciate at 20% over the period of five years by Rs 32768. Assuming we invest this difference for the tenure of five years, an interest of 6% per year can be earned without too much effort. The interest that Rs 100,000 will earn if invested at 6% will be Rs 33822.56. So, put differently, we lose out on this earning. Now, with the interest paid, interest lost and the depreciation over the tenure of five years as calculated, the value of the additional Rs 100,000 grows to an even more sizable Rs 221,590.56! Now, the only way this “additional” expense can make sense is if the savings that it results in are substantially greater than this amount.
Let us assume the price of petrol and diesel as Rs 55 and Rs 38 per litre respectively and the fuel efficiency for the two cars as 11km per litre and 15km per litre respectively. Going by these numbers, to run a petrol car for a kilometre you pay Rs. 5 and to run a diesel car you pay Rs. 2.53. Hence, if you run a diesel car, you save Rs. 2.47 per kilometre in running costs. In order to save as much money as the difference that you pay, which we have earlier seen is equal to Rs. 221,590.56, we have to drive the car for a distance large enough for the saving per kilometre to add up to this amount. A simple calculation here (difference/savings per km = 221,590.56 / 2.47) reveals the distance needs to be at least 89834.01km over five years. To drive 89834.01km over five years, one should drive at least 1497.23km a month, which amounts to 49.91km a day! So, only if you drive a whopping 49.91km a day will a diesel car save you as much money as the additional cost you pay for the diesel vehicle. If your daily usage is less than this, you will incur a loss on the balance sheet.
This is only the balance sheet cost benefit analysis for you. Let us not forget the obvious advantages that a petrol engine has over the diesel like better refinement, lower cost of maintenance and better life! Having said that, diesel engines are getting better and the gap is narrowing at a great pace. We tend to notice only those expenses which we pay for regularly. An additional expense like this one, which fools us into believing that we are actually saving money, should be looked at again.
8 Responses to “Petrol - still a viable option!”
what haeepns to the calculations if the 5 year loan is not being considered and the diesel car is purchased cash down oneshot. From the time that this blog was posted, interest rates have also gone higher to 14.5% for car loans.
Please express your views.
By pvm on May 21, 2008
pvm,
Firstly, over 75 percent of consumers avail of car loans, hence the inevitable consideration of the same. Secondly, if you are well-heeled enough to buy the car on an outright cash show, you ought to be beyond caring for any economics involved! Lucky you, I say
Also, the interest rates have climbed the ladder higher, but it is so for all the cars, fuel type notwithstanding. Interest rate depends more on segment of the cars, rather than fuel type.
Additionally, we always advise the person who has high running on the road to go in for diesel since that will bring down his overall expense, which is in accordance with what has been said in the article.
By Ashish Jha on May 21, 2008
Ashish,
Any news om the TATA AIR CAR?
At the moment with the options available in the market [Petrol / diesel] what you have in the article is completely justified. The comment that I requested for was for my understanding of the situation that I am in at this point.
All car loans make sense when you are looking at retaining the vehicle for a period of 3-5 years at least.
I purchased a Wagon R LPG in Aug 06 in exchange for my M800 petrol to cut running costs and since the wagon R being a petrol engine the added advantages in maintenance costs being lower as mentioned in the article above. At the time the price of lpg was at Rs.24/ltr and running cost of my W R LPG on lpg was Rs. 2.08/km.
A hatchback diesel reliable enough was not available at that time and at that price point b/n [4-6 Lakhs] except for the turbo indica.The swift diesel and getz crdi were atleast a year away according to the respective dealers in my city.
Hence went ahead with the W R DUO Lxi at Rs.4.28 Lakhs. My W R DUO was probably one of the first five LPG cars to be sold in my city. Now with the steep increase in auto LPG [Rs.36/ ltr.] the running cost of my WR on Lpg is almost equal to the running cost of my WR on petrol and so my W R duo is not as economical as it used to be.
I am tempted to look at a diesel hatchback now but the economics of an exchange are too expensive to consider. I still have about Rs.112000/- due with on my car loan and my bankers have already collected 99% of the interest component within the first 18 months of my tenure [total tenure being 36 months]. I cannot afford to own two cars nor do I have the space to park a second car. My average daily usage is 50 kms/ day.
Even if I am willing to absorb the cost of an exchange, or decide to buy my second car a diesel premium hatchback, its a lot of money blocked/wasted.
I am afraid I will face the same situation soon as the prices of diesel will hit the roof soon and then by that time maybe some smart manufacture will develop and sell a hybrid small car hatchback in India. I do not want to be in the same situation after the purchase of a diesel hatchback that I am in today with the WR DUO LPG.
My only hope is that some smart car manufacturer will develop and sell a hybrid specially designed for India ans will come into the market within the next 2 years.
How long do you think it will take for something like a hybrid small car/ hatchback to be made available in India?
How long will it take for a hybrid small car to be sold in India specially designed for the Indian small car market? Cause the hybrids like Toyota Prius do not justify the costs for us Indians considering the import duty on CKDs etc.
The hybrid should atleast offer a mileage of 30-35 KMPL [petrol/diesel] to justify a good following in India.
The government should cut excise on green/hybrid/electric cars to 4% [dream on] to jump-start a new chapter in the Indian automobile industry.
Any news on the TATA air car?
By pvm on May 22, 2008
pvm,
I can only but nod in agreement with your statements. I considered a general scenario, but the one you find yourself in, is rather unique and one could surely draw a lot from it. Unfortunately, India is not as mature a market as US or Europe and manufacturers are still giving us a limited choice as far as cars are concerned. I for one, have always been vocal about seeing cars like VW Polo, Golf, Mazda 2, Toyota Yaris, Suzuki Cervo, Renault Sandero etc all in India since the small-car segment is the one which will predominantly drive the automotive market for the next five years atleast. Once we have the choice of so many cars, we will be in a better position of deciding the right car for our needs. Also, the OEMs should take the impetus of offering their products with both diesel and petrol engines so that the consumer gets what he needs. It’s always been the mantra “consumer is the king” but the same has not been followed religiously in India, specially in the automotive market. Let us just hope that the OEMs wake up to the light of dawn.
Air cars are at least a zillion years away
Let the manufacturers get hybrids and electric vehicles first, only then the air cars will follow. Honda may launch the Civic Hybrid soon (read by the end of 2008). This should give its rivals the platform to introduce their hybrid projects.
All this is possible, but the government of India will have to seriously cut down the duties. And once that happens, think about it, even the Lambo Gallardo will be down to about 80lakh, instead of the current 1.5Cr asking price! I hope our govt. wakes up, for this is the opportune moment.
By Ashish Jha on May 22, 2008
The tatas have purchased a french car company that has prototypes running on compressed air. The concept and design of this air car is by a retired f1 engineer who has worked on this for 20 years.
The point is that cheap technology is available. The guestion is why is it not made available to the common car buyer? Even if the technology is not really proven I would sure buy a car like the aircar to show my gratitude to the manufacturer for having tried something new n bold like this. The civic hybrid is not the solution to $135 crude, though it the first step (in india ) in the right direction. I cannot justify the cost of the car (estimated on road Rs.20L) to give me a mileage of 20kmpl or less on petrol.
One full tank of petrol that driver a compressor to fill the aircars tanks can power the aircar for 3500 kms. Now tell me what hybrid r u talking about. The only byproduct of the aircar is cold air. Its called the thompson effect, remember 7th grade science lessons. U dont need an AC.
We have all the answers.
I am sure that the NANO AIRCAR will be available early 2010. Even at Rs.2.5L I sure am going to buy this Tata aircar and by then the civic hybrid would be on display in the Sultans (of Bruni) garage cause he would be the very few who could afford petrol in 2010 at $490 a barrel.
By Pvm on May 24, 2008
Hi Amit, you read my mind!! I actually wanted to write this article for some time now. Actually after the Swift/Dezire Diesel dabate started. Many people have a misconception that diesel is a better option because of the higher mileage. However, they really dont look at the initial cost difference between the two. Even without considering the interest earned and depreciation the calculation works out to be about 50-60k kms to cover up the cost difference (by the time you are ready to buy another car);-).
And another crutial point that you missed out in this comparison is the pollution factor.
With rising fuel prices, I feel the car companies and the Government should take adequate steps to promote hybrid/ electric cars, at least in India. Probably cut the subidies and increase taxes on cars. We are not only dealing with pollution but also with traffic congestion. I recently read in an article that Delhi loses nearly 42 crore man-hours per month. Even if we assume a paltry wage of Rs.10 per hour, the country loses 420 crores every month.!!!
By Girish on May 31, 2008
Diesels are good for global warming as they produce lot less Co2 and but their exausts have more cancer causing stuff!!!
Electric Vehicles are useless to most extent as their total cost of ownership is way higher because of limited battery life, limited travel range. They haven’t succeeded anywhere other than use in golf courses, campuses etc.
Petrol- electric hybrids seem to be doing well but again initial costs are high and total cost of ownership could be still higher because of battery life/replacement.
Fuel Cell cars have been the future for the past two decades and nothing coming to real life use.
There are some radical stuff being tried-out, check - http://www.aptera.com/. They claim 100 + miles per gallon of petrol.
Finally changing our lifestyle will be the ultimate solution - use buses and other public transportation, save money, health and the planet!
By Sreenivasa Madenahally on May 31, 2008
I think there is another factor that you have not taken into account. The price hike in petrol is generally more than diesel. Over a period of 5 years, this difference will accumulate to a substantial amount.
By Manish on Jun 4, 2008