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Should you buy a car when fuel prices are high?

LiveMint logoLiveMint 24-09-2017 Shaikh Zoaib Saleem

How important is fuel price when someone is buying a car? Should high prices (petrol Rs79.58/lt in Mumbai*) make you reconsider as it increases the overall ownership cost? We ask the experts.

Anil Rego, CEO and founder, Right Horizons Financial services

Fuel prices in India are creeping up slowly. For anybody considering purchasing a car, the total cost of ownership, which includes maintenance, garage, parking and incidental costs, add up to much more than just the fuel cost.

A good small car, with fully loaded features, costs about Rs5.5 lakh including all taxes. A 3-year car loan EMI at most banks will cost you about Rs14,000-15,000 if you make a Rs1-lakh down payment. Plus, the vehicle starts depreciating in value immediately.

Cars under city conditions do not give a mileage of more than 12-14 km per litre. This means, if you use the vehicle for office commute, spare Rs8,000-9,000 a month if you buy 110-120 litres of petrol. Unless there is free parking, parking in public spaces when you are out can cost another Rs3,000 per month assuming you pay Rs100 for 8 hours a day. Maintenance costs will also add to the bill. At the end of the first year, you will spend about Rs28,000-30,000 a month with about 35-40% going just on fuel. 

For the same level of travelling, hiring cabs will cost you less than Rs10,000 a month if you travel 800 km at a blended rate of Rs12 per km. Cabs allow you to simply pay for the ride, without bearing any other hassle. In case of leasing or self-drive car rental as well, costs are lower. Owning a car makes financial sense if you travel long distances and do not take any loan to fund the purchase.

Shubh Bansal, Co Fouder, Truebil

In India, a car purchase is one of the most aspirational buys. Indian car buyers today are brand conscious, they look out for features and are ready to exceed their budget if it adds value to their social image. But with buyers getting younger, buying a car for social validation is slowly fading away. New-age buyers are opening up to the idea of buying used cars that are available at 30-40% less (than new cars). 

There are not many people buying cars for the purpose of long-distance commutes. In our country, an average car owner drives 700-1,000 km in a month and considering the many fuel-efficient cars available in the market today, it hardly costs Rs2.50-3.00 per km at 20 km per litre mileage, translating into a monthly fuel expense of Rs2,000-3,000. This expense does not really impact car buying decisions, considering the rising disposable incomes of the middle-class. As a result, the constant fuel price hikes do not bother those who are willing to make the purchase or change cars frequently. 

In fact, fuel price hikes are inducing a sense of competitiveness among car manufacturers wherein fuel efficiency becomes the key point of the selling proposition. This becomes an auxiliary advantage for those who are willing to make car purchases at present as they will get a good deal on fuel-efficient cars without bothering about fuel prices.

Anupam Agarwal, co-founder and CEO, Revv

Petrol and diesel prices in India have increased consistently since the daily price revisions started, despite global oil prices heading the other way for most of this period. This makes owning a car more expensive, but it applies equally to other forms of mobility like cabs or bikes. It is inflationary in general. It could discourage a few people from buying cars, but it probably won’t move the needle on car ownership in the short term. 

From a purely economic standpoint, owning a car makes sense for ‘power users’, but not so much for those who clock, say, less than 12,000 km per year.

Rising affluence has often driven the growth in car sales in emerging markets. In fact, in other Asian countries, car sales have accelerated after reaching penetration levels of about 25 cars per 1,000 people, which is where India currently is. But India’s population density is unique among emerging markets at 2.5x of China, 15x of Brazil and could be a strong headwind to this trend. It means lesser space to build new roads, and effectively caps the car ownership levels that the country can accommodate. 

This is a challenge that will need us to combine tried-and-tested solutions like developing public transport, road space rationing and licence plate restrictions with more innovative ones like alternate mobility solutions to cover a wide gamut of needs beyond cabs, and even vehicles with smaller road footprint.

Surya Bhatia, managing partner, Asset Managers

Fuel prices play an important role in an individual’s decision to buy a car. But you cannot decide based just on the fuel price. It is actually a factor of how much the car is being used and how much it is run. If you drive for X km, then does it make sense for you to buy a car? If the number is very big, then maybe it makes sense. If I use other modes, like (online cab aggregators) Ola or Uber, I will end up paying a lot. Then come other costs like parking, depreciation and interest on loan, which need to be added to arrive at the cost to be incurred on a monthly basis. That is the rationale, and there can’t be a one-line answer. 

That being said, everything can’t be decided based on the math. You will also have to see factors like what time of the day you drive or your need of the vehicle. If you are, say, a marketing person, it may not be a good idea to use an Ola or an Uber each time. You will need your own vehicle.

The moment a person becomes financially independent, she thinks of buying a car as it defines financial freedom. It may not be used too often, but it’s about making a statement. But the decision should be based on usage. With the emergence of Ola and Uber, many people have started thinking (about this). For instance, many working women say they don’t want the trouble of driving and parking, while men want to buy a car immediately.

*As of 22 September 2017

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