Important Financial Calculations: Diesel-Petrol. Review on Petrol Vs. Diesel car

I am an automobile engineer and was always interested to decide the best Car buy based on facts and figures. After studying a lot of ways and doing considerable calculations to decide between Petrol and Diesel I have come to a certain conclusion on which the following review is based. Decision is based on Financial viability only. It is seen that most Indian people opt for Diesel vehicles only for economy reasons. So why not accurately estimate the money involved in Petrol - Diesel decision.

*The following review may sound boring or difficult to concentrate but remember it can save you a good deal of money.

*Please make your own excel sheet for calculation purpose its the only way to get your answers fast and allow for iterations or you can use my excel sheet available at https://spreadsheets.google.com/ccc?key=pMtkJxpnJcCcT58nk8BfDAw&hl=en

Suppose two persons purchase car on the same day 1diesel(CAR A) and the otherpetrol car(CAR B). As per your requirement decide at what kilometers you will sell the car, Say 85000 kms( kms of car ownership).

There are two calculations required for deciding-**One is finding out the Breakeven kms and the other the Final cost of the car for 85k kms.

*(Note its necessary to take the Car A as diesel car in the following calculations and Car A price should be more than Car B, otherwise it will give wrong results. The basic funda in following calculations is to break each cost on per kilometre basis)

Calculation 1: Find Breakeven point or Breakeven kms

As one has already paid more money for the Diesel car, At what kms will the Diesel car start giving gains as compared to petrol. Make a equation: Let Y be the breakeven kms, At Y kms the total cost of CAR A will be equal to Total cost of CAR B

Solve following equation to get Y kms which will decide the no. Of kms to be driven for a diesel vehicle after which it will start making profits compared to a petrol car.

Equation: Total cost of Car A+ Per km running cost of Car A * Y kms= Total cost Car B+ Per km running cost of Car B * Y kms.

Total cost of CAR A= Purchase cost of CAR A+ Interest+ Depreciation

Interest: Interest on the amount: [Purchase cost of Car A minus Purchase cost of Car B] for N no. Of years of car ownership.(Say 8.5% Interest on 1 lakh rs difference for 8 years)

N no. Of years= 85k kms/ Kilometer covered by car in 1 year

Depreciation: Assuming 20% depreciation on the above amount(so 20000rs on 1lakh)

(Note: Don’t forget to add the above interest and depreciation which is very important for the calculation to get the true picture to come in front. People forget this and do wrong calculations)

Per km running cost= Per km fuel cost+Per km maintenance cost.

Per km fuel cost= Fuel cost for 1 litre / Car mileage(in kms) for 1 litre of fuel.

Per km maintenance cost= 1 Servicing cost/ Service interval* in kms **(For eg. service of car at every 5000 kms)

(Note: Earlier the service interval for a diesel car was 5000 kms and for petrol was 10000kms but now modern Diesel engines have less maintenance and are getting nearly equal to the Petrol Engines. But off course when Diesel Engines give way, they lead to costly repairs compared to petrol. People often forget the maintenance cost and get wrong financial calculations. For eg you can add Rs 16000 for Diesel Pump Calibration for a Indica Diesel engine at 70-80k kms so 16000/70000 becomes the additional maintenance cost per km for a diesel engine)

Calculation 2: Find Final cost of Car A and B.

Final Cost of Car A= Total cost of Car A(calculated above, Not Purchase cost)+ Fuel cost for Car A *85000 kms

Final Cost of Car B= Total cost of CarB(calculated above, Not Purchase cost)+ Fuel cost for Car B *85000 kms

Solution:

*From Calculation 1 you will get breakeven kms, if breakeven kms are more than the kms at which you will sell the car, no use buying Diesel Car.

From Calculation 2 if the Final cost of Car A is greater than the Final Cost of Car B then no use taking Diesel. Carefully carry out the above two calculations and you will never make a wrong decision financially. If the Final cost of Diesel Car is only less by say 25000 rs as compared to Petrol Car it doesn’t make sense to buy Diesel car, because often Diesel engine due to more vibration give more work on suspension and alignment in long term.

Comment: Some people talk about minimum no. of kms which a diesel vehicle is to be driven in a month. I really do not agree with the whole concept, even if a diesel vehicle is driven tremendously within a month but you sell it within 2-3 years before reaching the breakeven point then it does not make any economical sense in purchasing diesel. So always do the full calculations over the entire period of your car ownership and you will come to know the real picture.Forget the "permonth km" figure. It dosenot give you the complete story. A higher "per month km" reading can or canot fetch you benefits you cant surely tell unless you do the full calculations for the whole periof of ownership of car.

Assumptions: 1) Depreciation on the total cost of both vehicles is not taken here to simplify the equation.

2) Resale value of both vehicles after 85k kms is also not considered. If you add the above points in the above equation you have a perfect evaluation whether to purchase a diesel or a petrol car.