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Diesel car or petrol car – which is cheaper?

A new report from Crisil Research has reopened the perennial problem pestering Indian car buyers – should you buy a diesel car or a petrol car? Which would be cheaper to run and own in the long run?

While the answer was unambiguous for the last four years, Crisil Research says the recent cuts in petrol prices have now tilted the balance firmly in favor of the former, making diesel cars suitable only for heavy users like taxi companies.

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First some background. Diesel cars were in vogue for the last four years for a simple reason — the fuel enjoyed state subsidy, while petrol did not. As a result, while a liter of petrol cost around Rs 80, an equal quantity of diesel cost only around Rs 56-60.

Add the fact that diesel, being a heavier fuel, normally gave a higher mileage of around 22 km while petrol gives a mileage of 14 km per liter. In all, the fuel cost per km for a diesel car was around Rs 2.5-3.0, while it was Rs 5-6 for petrol cars.

So, a person who drives around 10,000 km per year would save around Rs 25,000-30,000 in fuel costs. However, diesel variants cost around Rs 1.5 lakhs more. Since this 1.5 lakh is paid up front, there is an interest cost, of say around Rs 14,000 a month.

In other words, owning a diesel vehicle could fetch a typical owner savings of Rs 11,000-16,000 per year.

However, with government subsidy more or less going to zero now, the price of diesel is around Rs 65 and that of petrol, around Rs 75, per liter. The cost of running has therefore changed to Rs 3 per km and Rs 5.35 — or a differential of Rs 2.35 per km.

Per year, that turns out to be Rs 23,500. Subtract that by interest cost for Rs 1.5 lakh (Rs 14,000), you have a saving of around Rs 9,500.

The point of breakeven is if you are running the car only so much that your gross saving is only Rs 14,000, which is equal to the interest cost on the Rs 1.5 lakh that you have to pay. This turns out to be around 6,000 km per year, or about 500 km per month.

WHAT IS CRISIL SAYING?

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Crisil Research has chosen not to incorporate the interest cost. In other words, it has decided that there is no interest cost, and money is available free of cost as it were.

On the other hand, it has taken a considerably higher mileage for petrol cars. For Maruti Swift Dzire, for example, Crisil is taking a mileage of 19.1 km to one liter of petrol against 23.4 km per liter for diesel.

Similarly, for Honda Mobilio, it is taking a mileage of 17.3 km to one liter of petrol and 24.2 km to one liter of diesel.

Given these assumptions, even assuming zero interest cost, Crisil says it will take 5.3-5.5 years for an initial investment of around Rs 1.0-1.4 lakh rupees in buying a diesel vehicle to pay itself back.

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“With the price of petrol declining and that on diesel rising towards market linkage, we expect the average petrol-to-diesel price ratio to reach a decadal low of 1.2 times in this fiscal, and remain thereabouts on full deregulation.

“This differential is similar to what is seen in many parts of Europe, wherein the duty structure has favoured diesel due to its implication on the road transport sector.

“What this trend will also do is ensure the return to dominance of petrol vehicles. Manufacturers seem seized of the trend and have recently launched petrol variants in sedans as well as utility vehicles (UVs) – segments traditionally dominated by diesel. In the last fiscal, the share of diesel sedans and UVs was 70-75%, while in small cars it was about 35%,” it says.

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