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Business News/ Opinion / Online-views/  Don’t base car purchase just on fuel price
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Don’t base car purchase just on fuel price

You need to estimate your usage, the cost of running the car and its resale value.

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Jayachandran/Mint

Until now, diesel cars make more sense compared with petrol cars in terms of fuel prices. But will this continue to be so? Just last week, diesel prices were partially deregulated. Prices of diesel were increased a tad to 47.65 a litre and petrol was cut to 67.26 a litre.

With experts saying that eventually the price differential between petrol and diesel will become minimal, diesel cars may lose their price edge. Says Sumit Bali, director, Kotak Mahindra Prime Ltd, the vehicle finance arm of Kotak Mahindra Bank Ltd: “With the oil companies allowed to decide on the price of fuel, gradually we could see the price differential between diesel and petrol come down. This, however, will take time."

Impact on industry

The auto industry believes that the deregulation will cause a temporary blip in car sales. “The current level of fuel price has been accepted as the new normal and people are factoring the high cost of fuel while buying cars," says Yatin Chadha, vice-president franchise operations, Mahindra First Choice Wheels Ltd, a multi-brand car servicing firm.

Once diesel prices do get fully deregulated, it is likely that it will get fully priced. Says Bali, “Due to this falling differential, we could see the demand for diesel cars moderating and people delaying their decision to buy cars. However, this is not a permanent solution."

What’s the solution?

Rising diesel prices may dent your savings account every month and that may deter you from buying a car altogether, but the decision to buy a car should not just be based on fuel prices in the first place. “One should not base their decision to purchase cars solely on the price of fuel," says Bali.

You need to estimate your usage, the cost of running the car and its resale value, which together could cost you dearly if you don’t pay attention.

Usage: Says Kunal Khattar, vice-president, Carnation, an online car portal, “It only makes sense to buy a diesel car if you drive more than 50km a day. Petrol is best suited for someone who drives less than 40km a day." So if you live far away from your workplace and drive every day, then it does make sense to consider a diesel variant. The same is true if you take weekend trips in your cars to nearby holiday destinations.

Cost of running: Though diesel models usually cost about 1 lakh higher than the petrol versions, the cost of running a petrol car is the highest.

As of now, of course, a major part is the cost of fuel. A small petrol car will cost you nearly 5 a km, while the diesel version of the same car will have a running cost of 3.50. The maintenance charge for a petrol car is also higher.

“The idea is to get a quick payback on the additional outgo on a diesel car and then hold it for at least four years so as to get substantial benefit," explains Chadha.

Resale value: On this count, petrol cars clearly score over diesel cars. “If one if looking at selling the car within the next three years or so, it makes sense to stick to a petrol car," says Bali.

On average, a person keeps a car for only about five years. “And, the higher sticker price of the diesel model means you have to pay a higher monthly instalment for it," adds Bali.

“Also, depreciation of diesel cars is higher," says Chadha.

What should you do?

Common consensus is that with the fiscal situation and the pressure on the government to reduce subsidies, the chances of roll back of the diesel price deregulation look bleak. “So depending on the infrastructure availability the customers could look at alternate fuel options such as compressed natural gas (CNG) to keep the running costs low," suggests Chadha.

“Buying used cars and doing a retrofitment with CNG is a sensible solution," says Chadha. All in all, when comparing prices, consider other factors too to make a more sensible decision.

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Published: 28 Jan 2013, 01:52 PM IST
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