As fuel price gap narrows, petrol cars offer better cost advantage

With diesel prices cheaper by over 40 per cent than petrol, it was a no-brainer to go for the diesel car till a year ago.

Written by Sandeep Singh | Updated: October 6, 2014 12:08:36 am

Following a series of fuel price cuts as a result of softening global crude oil prices, the state-owned oil marketing companies announced a 65 paise cut in the price of petrol while keeping the diesel rates untouched and thereby narrowed the gap between diesel and petrol prices down to Rs 8.89 a litre from over Rs 20 per litre in January 2013.

In line with the changing dynamics of the fuel prices, the Indian automobile industry witnessed a big shift in customer preference from petrol cars to diesel cars and vice-versa.

If the preference was heavily tilted in favour of diesel cars till a few months ago, the tide now seems to have turned in favour of petrol cars after a series of monthly hikes in diesel prices beginning January 2013.

The gap between diesel and petrol prices which stood at almost 45 per cent in early 2013 has now narrowed down to 15 per cent, forcing the car buyers to think whether it makes sense to pay the additional capital of Rs 1 lakh to buy the diesel variant of the car.
While prospective customers may be looking for advice on whether they should go for a petrol or diesel car based on their average monthly running, Express Money does the exercise to make it easier for you to decide which car you should pick.

In order to arrive at a purchase decision, we looked into the two most important aspects — the capital outgo (the equated monthly installment on the two fuel variants of the same car model) and the running cost (respective fuel expense for the two car variants at various levels of monthly running).

Should you SETTLE  for a diesel car?

With diesel prices cheaper by over 40 per cent than petrol, it was a no-brainer to go for the diesel car till a year ago. However, today, with the price advantage that diesel offered fast eroding, the odds are stacked more in favour of petrol cars unless your monthly run on the car is more than 2,300-2400 km.

Since petrol variants of the same car model are priced roughly Rs 1 lakh cheaper than their diesel variant, car buyers must check their saving in terms of monthly EMI if they buy a petrol car and compare that expense with the saving on running cost.

In case of Maruti Suzuki DZire the petrol variant (VXI) is cheaper than the diesel variant (VDI) by  Rs 1,07,330 and therefore the EMI on a 5-year loan at 11 per cent rate of interest for a diesel car is higher by 2,334 (considering a constant down payment).

In case of Hyundai Verna SX the ex-showroom price of the diesel variant in New Delhi is higher by Rs 1,18,139 and in this case the EMI for a diesel car would be higher by Rs 2,568.

Going ahead with the example of Maruti DZire, once the EMI expense is ascertained, one must now check the average monthly run on the car and arrive at monthly fuel expense by taking into account the car mileage and the per litre cost of fuel.

[Monthly fuel expense= (Average monthly run ÷ car mileage) × Fuel cost] As per the fuel rates of Jan 2013, for a daily run of 30 km or monthly run of 900 km, it made more sense to go for petrol cars as  the fuel saving on diesel car for the month was not adequate to cover the additional EMI of Rs 2,334 (see table).

But if your monthly run was 1,800 km (60 km a day) then while your additional EMI on a diesel car was Rs 2,334, your saving on fuel for the month rose to Rs 2,710 and left you with a net saving of Rs 376, which made better sense to choose a diesel car.

However for the same car, at the existing fuel rates, even at an average monthly run of 1,800 km it does not make sense to go for diesel as the fuel saving has now narrowed down to Rs 1,859 which is less than Rs 2,334 which is the additional amount required to be paid as EMI for the diesel car.

So at what monthly run will it make sense to go for a diesel car at the prevailing fuel prices? A rough calculation for this car (as per the fuel economy details provided by the company) shows that only if your average monthly run is more than 2,300 km or above 75 km a day should you think of going for a diesel car.

This holds true even for other cars, however for cars where the price difference between the diesel and petrol variant is higher, your monthly run will have to be higher to make it reasonable for you to buy a diesel car.

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