JOIN USRefuelled: Petrol is the poison of choice
The point of focus for most potential automobile buyers, until recently, has been fuel efficiency; and that has translated into a large percentage of user in the country preferring diesel over petrol variants.
The perfect blend of mileage and a relatively high price difference, driven by disparities in excise duty and sales tax, a diesel variant offered as compared to petrol, made it the perfect choice for most drivers. However, this perfect blend has now been disrupted with steady narrowing in the price difference between the two fuels.
The high cost of acquisition which used to be accompanied with low cost now seems more of an unnecessary cost causing most users and potential buyers to rethink their decision to go with the seemingly cheaper fuel.
The price of petrol in Bangalore ( as on October 1) stood at Rs 74. 42 per litre, as compared to diesel to diesel at Rs 64. 07 per litre. The price differential which now stands at Rs 10 is much higher as against December last year, where diesel cost Rs 58.30 per litre and petrol was at about Rs 78.38 per litre.
This narrowing price difference has also been observed by rating agency Crisil, who in their recent report said that buying a diesel car makes less economic sense now as the time taken to recover the premium paid over a petrol variant has nearly doubled.
In its report Crisil justifies its statement saying, “In fiscal 2012, when the fuel price differential was at its widest, it took around 2.5 years to recover the premium paid to buy a diesel car, considering the savings made on fuel as well as resale price.”
Further adding, “Now, it will take nearly six years to recoup the money. This takes into account average car usage in India, which is 10,000 km annually. If one also factors in the time value of money, recovering the price premium will take even longer. This clearly indicates that purchasing a diesel car today does not make economic sense for private users, unless justified by usage. For commercial users, however, diesel cars still make economic sense given that usage will be much higher.”
Few exceptions
In terms of price, diesel is now losing a battle it has dominated for a long period of time. Car dealers, barring a few exceptions, say that users have already begun turning to petrol variants with the general belief that the narrowing price difference would only increase further.
On recent trends in choice, Mandovi Motors, Vice-President, Marketing and Sales, Yeshwant Rai K in an e-mail interaction said, “Recent sales trends have been endorsing Crisil’s statement on diesel cars. A diesel car will cost around Rs 1.2 lakh more than petrol variant and the narrow price difference between petrol and diesel per litre, will certainly not make sense for an average user of around 40 km a day.”
Further clarifying the changing trend, Rai said that petrol car to diesel car sales ratio in Mandovi Motors was 53:47 in fiscal 2012-2013, 65:35 in fiscal 2013-2014 and it is 68:32 in the first half of 2014-2015.
Rai added, “In the case of first time buyers there are two categories, people who either graduate from two wheelers or teens who just start earning handsome salary.
“Two wheeler upgraders will certainly go to a petrol car as the price of diesel car is almost Rs 1.2 lakh more, which they may not be able to afford, whereas a small percentage of youngsters who purchase cars for the first time may go for diesel cars because of its turbo power,” he said.
Partially supporting the sentiment that petrol would be more opted for in the future but maintaining that diesel still has a place in the market, Founder CEO Cartrade.com Vinay Sanghi, said, “Just a year back, the diesel variants of hatchbacks and compact sedans were outselling their petrol counterparts but now the trend has reversed because of the lower difference between the pricing of both fuels. While customers in this segment are showing more interest in petrol, premium models are still selling strong in diesel variants.”
On the segment of customers which prefer diesel variants, Sanghi said, “We have observed that consumers in their early thirties prefer a diesel car over petrol. It also depends on their occupation/ profession, geographic location and daily commute distance. For consumers who are in a field related job which requires traveling longer distances, a diesel car proves to be a better option because of its lower running cost.”
The founder of the online auto classifieds also observed that budget is more often than not a major deciding factor for potential buyers, “Budget plays the most important role behind choosing a particular variant. A vast number of consumers prefer to buy the top end version over a base version, provided the difference between the lower most and fully loaded variant is not much. In a top end variant, features offered are more and thus consumers look for its long term advantage instead of saving more on a lower version. The best example for understanding this is the Ford Ecosport Titanium variant, which commands a longer waiting period compared to the basic model.”
Sanghi is also of the opinion that mileage may just give diesel an advantage. “Diesel cars have a higher servicing cost and so it is advised only to customers who travel more as its running cost is lesser. Fuel efficiency of diesel cars is more because of its potential to produce greater torque at lower engine speeds. Thus effectively, the cost incurred per km is lesser than petrol engines. Even the aspirational class of owners buying premium cars pays great attention to the cost of ownership. The same can be vindicated by the fact that Audi’s flagship Q7 SUV sells more in 3.0TDI version than in 4.2TDI.”
Buyers choice
On the mileage advantage diesel cars are known to provide, Rai said, “Car mileage and price per litre will go in tandem. The narrowing price difference scenario now means that the higher mileage of a diesel car will not have much effect on the buyers choice.”
Nandi Toyota Sales Manager Deepak Nair, however, said in an e-mail interaction that despite the narrowed down price difference the dealership has not seen a change in trend towards petrol. On the Crisil report Nair said, “ Although the report may be true to a certain extent, the resale value of diesel is still better than petrol giving it a slight advantage. Even if the prices reaches the same psychologically it will take time to change the mind set of Indian customers”
Substantiating his opinion that diesel cars still might be preferred Nair said, “Out of the total retails in the dealership, 15 per cent were petrol and 85 per cent were diesel (both 2013 and 2014 till date).”
On strategies to push sales of diesel cars, Trident Automobiles, Director, Samir Choudhry in an e-mail interaction said, “There appears little if any choice besides reducing the price of diesel cars to make them a more attractive value proposition or impressing upon the government to once again bring down diesel prices (which is highly unlikely), thereby reducing the running cost do diesel cars.”
Choudhry who is sure that petrol variants will have the advantage in the future, said, “Petrol engines are cheaper to make and maintain , so unless the gap between the two fuels once again increases significantly we would see a shift in the direction of petrol vehicles.”
“First time buyers will, without a doubt, prefer petrol variants as well,” he added.
Similarly, Prerana Motors, Head of Sales, Ranganath Nagaraj also feels that petrol is already being favoured by most users and potential buyers.
“Diesel deregulation, which is round the corner is likely to further boost sales of petrol editions, as the higher initial cost of a diesel car is no longer justified by lower fuel cost,” he said.
Although the common concensus, with a few exceptions, favours petrol, all the dealers that were interviewed maintained that high usage in terms of distance travelled makes purchasing diesel cars viable irrespective of its rising cost.
Customers using cars for longer distances should still prefer the diesel variant as the factor of mileage plays more of a role, however for city drives, the common opinion is that petrol should come out on top as the more opted vehicle in the days to come.