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Old 13th May 2013, 12:40   #1216
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by carboy View Post
So either diesel should be taxed more or petrol should be taxed less.
I would vote for petrol taxes to be reduced!
Its not happening in a hurry
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Old 13th May 2013, 12:41   #1217
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

Let us compare the below vehicles

1) Honda Accord (Petrol) & Skoda Superb TSI (Petrol) - Roughly the same price.
2) Skoda Superb Diesel - Roughly priced about 4L+ higher than the Petrol after discounts.

The Petrols can be expected to given a FE of roughly 9 kmpl, while the Diesel can be expected to give a FE of roughly 13 kmpl with similar kind of driving in both cases.

So for 24,000 kms per year we require Petrol worth about Rs. 185,000 (Approx.)
and Diesel worth Rs. 105,000 (Approx.) today, and possibly worth Rs. 125,000 (Approx) at priced expected a year down the line. Essentially just a minor (5%) difference in fuel price with diesel being only slightly cheaper but much more fuel efficient will imply a Rs. 60,000 saving per year - The justification of the higher cost of diesel in that segment will require 6+ years since the diesel is in this case priced significantly higher than the diesel.

But there are vehicles in segments both higher and lower where the diesels are priced relatively closer to the petrol version and here the recovery is much faster. It would be a no brainer if both a petrol or a diesel version were priced more or less the same though. The diesel vehicle of course will also repay at a later stage in terms of resale value but it will also loose a similar amount in the cost of funds required.

In short the diesels will continue to make economical sense at about 1500-2000 kms per month but in time though diesels will still be more expensive as they cost more to make, but they premium that is charged by the companies will disappear in time.
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Old 13th May 2013, 18:42   #1218
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by ACM View Post
Let us compare the below vehicles

1) Honda Accord (Petrol) & Skoda Superb TSI (Petrol) - Roughly the same price.
2) Skoda Superb Diesel - Roughly priced about 4L+ higher than the Petrol after discounts.

The Petrols can be expected to given a FE of roughly 9 kmpl, while the Diesel can be expected to give a FE of roughly 13 kmpl with similar kind of driving in both cases.

But there are vehicles in segments both higher and lower where the diesels are priced relatively closer to the petrol version and here the recovery is much faster. It would be a no brainer if both a petrol or a diesel version were priced more or less the same though. The diesel vehicle of course will also repay at a later stage in terms of resale value but it will also loose a similar amount in the cost of funds required.
+1. And I think even here the difference would be covered faster as I highly doubt that a Petrol D segment sedan would give you a FE of 9. I have heard numerous accord owners amongst family and friends crib about the FE and that its more around 7-8 kmpl at best.

Also if you take others cars in comparison then the difference becomes more clear. For instance Toyota Altis.
Petrol FE: 10-11 at best.
Diesel FE: 18-19 kmpl and more if you drive with a light foot.
The price difference between the 2 is around a lac. And hence the recovery is very fast.
Same can be said about the Sunny (the other diesel car that I own). My diesel sunny gives me around 18-19 in the city. The last 2 tankfulls returned a mind boggling 21 kmpl each. The petrol variant would not give more than 12 kmpl.
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Old 13th May 2013, 19:12   #1219
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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This is all assuming that petrol - diesel parity will remain the way it is; which we do not know for sure. It might remain like this till next general elections. Market conditions are never predictable. Diesel deregulation seems like an election gimmick for now. My 2 cents.
Hello Stringbh,

Had it been election gimmick, the current government would have never taken the decision of partial deregularation of Diesel. For a change this time around the government seems serious, mainly due to falling Rupee & rising fiscal deficits. It took nothing less than multiple threats from International agencies to downgrade India's investment status to junk category.

Also given the price of International Crude, it is not practical for any government to keep Diesel prices to very low levels by giving subsidies.

I foresee a scenario almost one year from today when prices of both Diesel & Petrol prices will be determined by market forces.

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Old 13th May 2013, 20:56   #1220
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by carboy View Post
diesel non-regulation was a populist measure...
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Originally Posted by Jignesh View Post
it is not practical for any government to keep Diesel prices to very low...Diesel & Petrol prices will be determined by market forces.
I am no expert, but, probably, without deregulation, there would have been an indirect impact on inflation in an year or so?

Thanks Jignesh. Not very low, but, for a still developing country like India, some disparity is needed? I was wondering that market forces getting a free hand, will also depend on how strong our country's economy is, and, may be, whether a reform oriented government is voted in (just speculating).
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Old 13th May 2013, 21:28   #1221
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by stringbh View Post
I am no expert, but, probably, without deregulation, there would have been an indirect impact on inflation in an year or so?
Thanks Jignesh. Not very low, but, for a still developing country like India, some disparity is needed? I
Hello Stringbh,

Diesel prices have increased almost Rs. 7 in last couple of months, which means hike of more than 15%. But have you read anywhere that inflation has increased due to rise in Diesel prices? There are many blogs online explaining that de-regularization of Diesel will not impact inflation much. Also the huge subsidy that Government is currently paying to oil marketing companies can be put to much better use if Diesel prices are de-regulated.

We have in past (& currently) have seen rampant misuse of subsidized Diesel. Just to give two examples - most SUV & high profile cars are running on Diesel & all those malls are lightened for extended hours by generators burning subsidized Diesel (which is ideally for poor people of India).

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Old 13th May 2013, 22:51   #1222
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by Jignesh View Post
that inflation has increased due to rise in Diesel prices?

We have in past (& currently) have seen rampant misuse of subsidized Diesel.
My friend, please read my post above, I said: without de-regularization, there would have been impact on inflation.

Regarding misuse, it should be tackled. And about the poor, well the poor do not even have access to clean water and electricity: what are we doing about it? So, no problem with de-regularization and I never said i am against it. But, the reason that, some SUV guy is getting advantage for using subsidized diesel is a wrong argument, in my opinion.

Last edited by stringbh : 13th May 2013 at 22:53.
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Old 13th May 2013, 23:08   #1223
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by stringbh View Post
My friend, please read my post above, I said: without de-regularization, there would have been impact on inflation.

Regarding misuse, it should be tackled. And about the poor, well the poor do not even have access to clean water and electricity: what are we doing about it? So, no problem with de-regularization and I never said i am against it. But, the reason that, some SUV guy is getting advantage for using subsidized diesel is a wrong argument, in my opinion.
It is a myth, and has been proven recently, that un-subsidized diesel would fuel inflation. Businesses (fleet operators, truck operators etc) use subsidized diesel. Actually they and their customers can absorb the effect more than individual customers.

Take the case of LPG. There, subsidy is provided to individual/domestic customers while businesses (hotels etc) pay the full price. Because the effect of high price of un-subsidized diesel gets distributed among the users, hence the effect is better absorbed.

So the govt should immediately, throw away whatever subsidy that is remaining, and remove the skew.
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Old 14th May 2013, 00:02   #1224
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by ACM View Post
Let us compare the below vehicles

1) Honda Accord (Petrol) & Skoda Superb TSI (Petrol) - Roughly the same price.
2) Skoda Superb Diesel - Roughly priced about 4L+ higher than the Petrol after discounts.

The Petrols can be expected to given a FE of roughly 9 kmpl, while the Diesel can be expected to give a FE of roughly 13 kmpl with similar kind of driving in both cases.

So for 24,000 kms per year we require Petrol worth about Rs. 185,000 (Approx.)
and Diesel worth Rs. 105,000 (Approx.) today, and possibly worth Rs. 125,000 (Approx) at priced expected a year down the line. Essentially just a minor (5%) difference in fuel price with diesel being only slightly cheaper but much more fuel efficient will imply a Rs. 60,000 saving per year - The justification of the higher cost of diesel in that segment will require 6+ years since the diesel is in this case priced significantly higher than the diesel.
Agreed but you are forgetting one more important criteria. Resale value. 6+ years is time taken to make up the difference between P and D, but when you go to sell, the D always gets the better resale, so the D gives better RoI when you sell. The 4L extra paid over the P variant when you bought the car is easily made up on resale. The savings on runnings are a bonus.

Last edited by Vid6639 : 14th May 2013 at 00:03.
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Old 14th May 2013, 00:19   #1225
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

Wonder if diesel party is about to end. There is a possibility of both costing nearly same, few years hence, if what happened in Goa already is any indication in that direction.

Only MUL seems to be a carmaker which has petrol / diesel portfolio matched evenly. If diesel rules, then we see Swifts and Dzires flying off shelves. If petrol wins, then we will see more Altos and Wagon Rs hitting streets.
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Old 14th May 2013, 00:25   #1226
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Let me use your own legends ( D& P)

Getting a higher resale for D as compared to P is a recent phenomenon- again attributed to their current difference in running costs.

If you buy now and sell 4 years later, the difference in resale wouldn't be there because running costs wouldn't differ much!

What you did not take into account is that D runs much higher maintenance bills.

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Originally Posted by Vid6639 View Post
Agreed but you are forgetting one more important criteria. Resale value. 6+ years is time taken to make up the difference between P and D, but when you go to sell, the D always gets the better resale, so the D gives better RoI when you sell. The 4L extra paid over the P variant when you bought the car is easily made up on resale. The savings on runnings are a bonus.
Subsidy itself is a myth.
If after buying crude, transporting and refining crude - diesel costs government x rs/liter

They decide that the selling price in a state should be x+40% tax(roughly)
Now out of kindness,government decides to give us a subsidy and sells it at x+30%tax and calls it a subsidy.

So its not like government incurs a loss on selling diesel,they still make a huge amount of tax from diesel sales - just less than what they THINK should ideally be levied.

Quote:
Originally Posted by civic-sense View Post
It is a myth, and has been proven recently, that un-subsidized diesel would fuel inflation. Businesses (fleet operators, truck operators etc) use subsidized diesel. Actually they and their customers can absorb the effect more than individual customers.

Take the case of LPG. There, subsidy is provided to individual/domestic customers while businesses (hotels etc) pay the full price. Because the effect of high price of un-subsidized diesel gets distributed among the users, hence the effect is better absorbed.

So the govt should immediately, throw away whatever subsidy that is remaining, and remove the skew.

Last edited by moralfibre : 14th May 2013 at 12:39. Reason: Back to back posts.
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Old 14th May 2013, 01:59   #1227
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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What you did not take into account is that D runs much higher maintenance bills.
How do you say that? I have a diesel hatch and a petrol sedan. Both cars visit the service centre once a year and have service bills of less than 5K.

Higher maintenance costs for diesel is not that much. For example a Superb P or D will still take super premium synthetic engine oil and will have equally complex parts replacements since both are turbo with direct injection.
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Old 14th May 2013, 09:11   #1228
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by drmohitg View Post
+1. And I think even here the difference would be covered faster as I highly doubt that a Petrol D segment sedan would give you a FE of 9. I have heard numerous accord owners amongst family and friends crib about the FE and that its more around 7-8 kmpl at best.

Also if you take others cars in comparison then the difference becomes more clear. For instance Toyota Altis.
Petrol FE: 10-11 at best.
Diesel FE: 18-19 kmpl and more if you drive with a light foot.
The price difference between the 2 is around a lac. And hence the recovery is very fast.
Same can be said about the Sunny (the other diesel car that I own). My diesel sunny gives me around 18-19 in the city. The last 2 tankfulls returned a mind boggling 21 kmpl each. The petrol variant would not give more than 12 kmpl.
The Altis would not make for a fair comparison. The diesel is seriously underpowered and that will be a major factor in decision making. I mean paying 2 lakhs more for an 88 PS diesel over a 130 PS smooth petrol car is not an easy pill to swallow.

For cars like the Sunny, Vento etc... the petrol counterparts not only are more expensive to run , their performance is nothing much to write home about. Plonk the 1.2 TSI into the Vento and price it economically. Its bound to eat into the diesel Vento's sales.

With the gap between petrol and diesel reducing every month the mad rush for diesel cars is bound to reduce. Resale prices of good petrol cars will also see a revival. A low mileage used Civic or Altis doesn't look so bad anymore.
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Old 14th May 2013, 09:17   #1229
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by ff1609 View Post
Subsidy itself is a myth.
If after buying crude, transporting and refining crude - diesel costs government x rs/liter

They decide that the selling price in a state should be x+40% tax(roughly)
Now out of kindness,government decides to give us a subsidy and sells it at x+30%tax and calls it a subsidy.

So its not like government incurs a loss on selling diesel,they still make a huge amount of tax from diesel sales - just less than what they THINK should ideally be levied.
Diesel is subsidized on all three levels viz. subsidy on cost price, subsidy in form of less central excise duty and subsidy in form of lesser state VAT. Following is the rough price breakup for petrol and diesel:

Petrol:
Cost Price: Rs 41.30
Central Excise : Rs 9.48
State VAT : Rs. 10.20
Total : Rs. 63.09 (includes dealer commission et al.)

Diesel:
Cost Price: Rs 42.16 (cost price of diesel is more than petrol)
Subsidy: Rs. 2.90
Central Excise : Rs 3.56
State VAT : Rs. 5.77
Total : Rs. 49.69 (includes dealer commission et al.)

Above is the price build-up of petrol and diesel in Delhi.

See following documents (from IOCL website)
Petrol - Price_buildup_of_MS.pdf
Diesel - Price Build up Sensitive Products.pdf
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Old 14th May 2013, 09:41   #1230
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Default Re: Rationalising diesel prices. *Update: 50p rise/month announced*

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Originally Posted by Vid6639 View Post
Agreed but you are forgetting one more important criteria. Resale value. 6+ years is time taken to make up the difference between P and D, but when you go to sell, the D always gets the better resale, so the D gives better RoI when you sell. The 4L extra paid over the P variant when you bought the car is easily made up on resale. The savings on runnings are a bonus.
The 4L extra over P variant may give a better resale but there is also the cost of money of 4L extra for the period one hold the vehicle.

So if 4L extra translates to Rs. 2.5L extra at sale then the Diesel has still cost Rs. 1.5L extra plus Rs. 40K per year in terms of cost of money = Rs. 2L over 5 years.

So a Diesel cost Rs. 4 + 2= Rs. 6L and got back an extra Rs. 2.5L still it would cost Rs. 3.5L more.

Basically it all comes out to be more or less similar in the long run. Right now Diesel goes give an advantage but if Diesel prices go up to levels similar to Petrol forcing Diesel car prices to drop a bit more closer to those of petrol cars. We will also have a situation where the resale values too will not differ that much.

The Layman does easily figure the difference in Petrol and Diesel Prices but not clearly enough the efficiency difference, and the cost of Money so resale value does tend to be a factor of perceived cost savings rather than the real savings.
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