How do you choose between different fuel variants of the same model of the car?
- Driving experience:
- Just check if you are doing apples to apples comparison. Some times in order to price it economically for taxi segments, some companies come up with an underpowered diesel base variant. Like Renault has a 85PS diesel, 100 PS petrol and 110 PS Diesel (sports variant). Higher power means better acceleration and riding experience.
- Turbo-Charger: Some diesel engine has a turbo booster that kicks in at 2000 RPM which greatly improves the car pick-up. Also the torque rating of a diesel engine is inherently superior.
Just because they have replaced one make of the engine with another, does not mean that it is the same. Please test-drive the car and make your own judgment about the real worth and driving experience for the vehicle variant.
- Ability to pay
- Check your financing options. If you believe that the base version itself is a stretch for you, the more expensive diesel version will only compound to your problems. There is a saying in India “Jis bageeche kea am nahi khana, uske ped ginee ka kya fayeda.” There is no merit in counting the trees of the orchid whose fruits you can never taste.
- Car is a depreciating asset, so no point in spending too much today if you are going to replace it every 5-7 years. Buy one that suits your needs, helps you maintain your prestige in the community and is easy on your pocket.
- Company financing options. Typically sometimes they have special promotional scheme for one variant (but not for another). Interest free loans or low interest installment options.
- Cost of ownership:
- Assuming the on the above four criteria, you are OK or ambivalent, then you should put the cost of ownership on a serious excel file and compute for yourself
- I have taken 2.4 L as the premium (inclusive of road tax and exercise duty) between the two variants. Don’t forget the taxes as they difference between ex-showroom price and on road price is significantly different.
- The insurance cost is typically linked to a % of asset value. Hence diesel would have a higher insurance outflow. Similarly the Upkeep/service/maintenance cost of the diesel vehicle would be higher.
- Then you should compensate these additional expenses with the higher resale value of the diesel variant. For same amount of miles & age of the vehicle, the people prefer the diesel vehicle as the operating cost is low and the difference between the petrol and diesel variant is minuscule.
- Then based on your expected driving behavior you need to compute the miles that you are going to put on the vehicle. The difference in the mileage between the two engines & the difference in the fuel prices could lead to a substantial saving.
- Finally you should sum up the yearly cash flow. (please add any more parameters that I might have skipped)
- Compute the IRR of the 7 year (longer based on your forecast).
- Finally if you get a IRR that is higher than your cost of funds (interest on bank loan + own capital) then you should go for the diesel variant, else petrol variant is suited for you.
- Add the financing charges/sops/dealer discounts to the computation to make it more wholesome.
|Year 0||Year 1||year 2||year 3||year 4||year 5||year 6||Year 7|
|Higher mileage of Diesel||15,000||15,000||15,000||15,000||15,000||15,000||15,000|
|Less expensive then petrol||30,000||30,000||30,000||30,000||30,000||30,000||30,000|
|Net cash flow||(241,000)||43,200||42,400||42,400||42,400||41,400||41,400||111,400|
- Other considerations:
As a rule of thumb, if you are using for more than 1,000km per month, then diesel makes more sense. Also 12% should be the cost for your own capital and SBI gives car loan at 10.50%. So for a 70% financing your cost of capital is 30% * 12% + 10.5% * 70% = 11%
Bangalore there is a difference of 20/- between petrol and diesel prices, in Goa the difference is much lower. Plus government has publically announced that they will reduce the price