Diesel cars go easy on your pocket :: Business Line,

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The price gap between petrol and diesel has been steadily increasing and currently, a litre of diesel in India is cheaper by almost Rs 25.

If you're buying a new car, should you shell out a higher price upfront to buy the diesel variant?

Those favouring petrol cars point to their significant upfront cost advantage (cheaper by up to Rs 1, 50,000 or more depending on the models) over diesel versions. Supporters of diesel cars harp on huge savings on running costs, with diesel being much cheaper than petrol and also delivering better mileage.

So who wins? After factoring in all the costs involved in owning a car, it is diesel, our calculations show. With technological advancements, diesel cars these days also provide a good driving experience and are also more environment-friendly than before.

Conventional wisdom suggests that a diesel car would make economic sense only if the vehicle usage is heavy and break-even time is short.

But after talking to car dealers and crunching some numbers, a diesel car works out cheaper even for users with moderate vehicle usage, say around 40 km a day (See table).

As usage increases, the case in favour of diesel cars becomes stronger. While the table illustrates the comparative cumulative cost differences after a period of three years (a minimum car holding period for most folks), it was seen that the diesel car had a cost advantage even if it was used and sold after only one year.

THE EDGE

Much of the edge enjoyed by diesel cars is because of the low price of the fuel compared to petrol. After its decontrol in June 2010, the price of petrol has been raised several times while diesel price has been increased only sporadically. Consequently, the gap between the two fuels has been steadily increasing and currently, a litre of diesel in India is cheaper by almost Rs 25 compared to petrol. Add to this, higher mileage (diesel cars deliver around 3 to 4 km more for a litre) balloons the variable cost advantage of diesel variants significantly.

On the other hand, the initial price advantage enjoyed by a petrol car is blunted sharply when the resale values of the cars is factored in. Yes, a costlier diesel car would entail a higher interest outgo on the loan taken to finance it and also higher annual expenses on maintenance and insurance. But at the same time, a diesel car more often than not enjoys better resale value compared to the petrol version. With customers in India showing a distinct preference for diesel cars and there being a long wait for many diesel variants, their resale price premium over petrol cars should stay or even increase.

IMPACT OF POLICY CHANGE

Will diesel cars continue to hold their edge? India's public sector oil marketing companies (Indian Oil, BPCL and HPCL) are losing a lot of money selling diesel at subsidised rates, and the government also steps in to help foot the subsidy bill. There is an increasing clamour to hike the price of diesel used by passenger vehicles (do users of SUVs really deserve subsidy, the argument goes), or if that is not feasible due to differential pricing difficulties, to at least impose special taxes on diesel vehicles.

While decontrol of diesel prices may not happen in a hurry due to economic and political considerations, a hike in the fuel's price or special tax on diesel cars cannot be ruled out. This could dent the advantage diesel cars have over petrol ones. The extent of these hikes or taxes, though need to be significant for diesel cars to lose their competitive position against petrol cars. The coming budget in March will be keenly watched in this regard. But as things stand, buying a diesel car should likely work out easier on your pocket, even if you are not a heavy user.