Crude shock for diesel car owners: Petrol cars make more sense now

The recent fall in international crude (and consequently retail fuel) prices and the government’s recent decision to deregulate diesel have resulted in a big fall in the attractiveness of buying a diesel car from a cost-effectiveness standpoint.

It must be remembered the UPA government had deregulated petrol prices in June 2010, which resulted in its price soaring at the pump vis-a-vis diesel, whose deregulation started in January 2013 (when the then government mandated a 50-paisa-monthly-hike till prices reached cost price) and culminated in October this year (when the NDA government fully deregulated the fuel).

The chart below denotes the price movement of petrol and diesel (IOC prices - Delhi) and the differential between the two.

Petrol vs diesel | Create infographics

As can be seen, in May 2012, the difference between petrol and diesel prices had risen to a whopping Rs 32.2 per litre (from a low of Rs 9.76 in January 2009). But following diesel’s monthly prices increases, that differential has steadily narrow and recently hit a low of Rs 7.68 per litre - the differential is now at Rs 10.82.

Thanks to soaring differential between the two fuels a couple of years back, buyers made a beeline to showrooms to pick up diesel cars - which at one point, outsold petrol cars 7 to 3.

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But it seems the tide has firmly turned. Latest reports indicate petrol cars have again found favour with buyers compared to diesels, as the fuel’s overall affordability has started to come down, and as shrinking savings on running cost becomes more and more offset by pricier diesel models.

For comparison’s sake, we pick up the price difference between the petrol and diesel mid-variants of the popular hatchback Maruti Swift. Over the past few years, the price differential between the Swift Vxi and Swift Vdi has been at Rs 1.25 lakh (we will ignore the Rs 30,000 odd year-end discount Maruti is currently offering to liquidate slow-selling diesel car inventory.)

Now, assuming the car clocks an average mileage of 15,000/20,000/25,000 kms a year, running a diesel would result in fuel savings of about Rs 15,300/20,400/25,500. The math is this: a single km running cost for the petrol would be Rs 3.10 (Rs 63.33 divided by ARAI mileage of 20.4) while for the diesel, it would come to Rs 2.08 (Rs 52.51/25.2), resulting in net per km savings of Rs 1.02.

As a result, the breakeven period for the differential paid extends to 8.22/6.12/4.9 years. When the differential was at Rs 32, the breakeven period stood at 4.31/3.23/2.59 years – or roughly half the current time it takes to recover the extra cost paid.

While the above calculation draws on the example of only one particular model, it is fair to assume results would be similar if we were to run the same exercise on other cars and models in this price bracket.

It is also simplistic and ignores several others factors: it does not consider on-road prices, takes into account ARAI mileages and not actual fuel economies, ignores higher maintenance costs for diesel (though they can hardly be considered for newer, technology-advanced models) as well as higher reselling prices for diesels.

But even then, the end result would likely not deviate too much from our analysis as most adjustments would either be applicable for both in some cases or cancel out each other in others.