When should you sell a petrol car and buy a diesel?

Case study: Swapping a used Toyota Corolla for a new Nissan Sunny XL diesel.

If you own a petrol car and drive a significant distance each month, in the last couple of years you would have begun to feel the pinch of fuel bills a lot more. Petrol prices were deregulated in 2010 and have since shot up, becoming over 60% more expensive than diesel.

In such a scenario does it make sense to sell your petrol car and buy a new diesel car? When will you get back your return on investment? Will it save you money?

CarToq case study

Scenario: A person who wants to sell a 2007 model Toyota Corolla, which cost approximately Rs. 12 lakh then, and buy a diesel sedan such as the Nissan Sunny XL that would cost about Rs. 9 lakh on road. He drives about 60 km a day, clocking approximately 1,500 km a month. His requirements are clear. He wants a comfortable diesel sedan that is fuel efficient and will mainly be chauffeur driven, and hence the choice of the Nissan Sunny XL diesel. Also see: Nissan Sunny diesel road test

Looking at used car prices in the market, a 2007 model Toyota Corolla that has done a fair bit of running, will fetch about Rs. 5 lakh at the most.

The price of a new Nissan Sunny XL diesel works out to approximately Rs. 9 lakh. Assuming you pay Rs. 5 lakh as down payment (from sale of the Toyota Corolla) and take Rs. 4 lakh as a loan, it will work out to an EMI of Rs. 8,618 in a five-year tenure. In five years you will end up paying about Rs. 5.17 lakh as EMI.

Assuming that the Toyota Corolla gives a mileage of 10 kmpl, it works out to a per KM running cost of Rs. 7 a km. Assuming the Sunny diesel gives a mileage of 16 kmpl, it works out to a per KM running cost of Rs. 3 per km, a straightforward fuel saving of Rs. 4 per km. In a month, with 1,500 km of running that works out to a saving of Rs. 6,000 on fuel!

Now this car will be bought in the name of the company, allowing for tax savings on depreciation of the car at 40% of the value per year. The car will be worth about Rs. 3.6 lakh residual value assuming a five-year-old car retains 40% of its value. And by claiming depreciation, you will save nearly Rs. 2.5 lakh in tax savings alone.

The total savings work out to Rs. 6.1 lakh (fuel savings in five years plus savings on income tax). See table.

[table id=975 /]

At the end of five years, your Sunny diesel will be worth about Rs. 3.6 lakh (on paper) and you would have saved an additional Rs. 93,000 on fuel costs after factoring in the EMI payments (Rs. 6.1 lakh fuel cost minus Rs. 5.17 lakh EMI payment).

Not to forget, the fuel savings begin from day one. It’s definitely a good deal if bought for tax savings.