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DIESEL OR PETROL – WHICH IS BEST FOR YOU?

The spectre of rising fuel prices is now beginning to loom large in the minds of many motorists and with good reason.

In the following chart we have summarised the annual fuel costs for 3 year old cars in each of the last 5 years. We have assumed that the average mileage would be 12,000 and applied the average pump prices at May of each year. Total fuel costs are shown separately for 3 year old diesel and petrol engined cars.

Diesel Petrol 3 year old car in: MPG (1) Pence per gallon (2) Total fuel costs (3) MPG (1) Pence per gallon (2) Total fuel costs (3) 2004 48.0 376 £940 39.0 372 £1,145 2005 48.5 408 £1,009 39.5 389 £1,182 2006 48.0 450 £1,025 40.0 440 £1,320 2007 48.0 440 £1,100 40.5 436 £1,292 2008 48.5 555 £1,373 41.0 505 £1,478 The change in annual fuel costs for 3 year old cars  Notes: (1) Based on the annual `combined' fuel consumption figures when the car was registered new. (2) National average fuel price in May of each year (Source AA). (3) Total annual costs assuming annual mileage of 12,000.

This means that the second owner will face the full effect of rising fuel prices unless there is a conscious and deliberate attempt to purchase something more economical. The more likely decision has been a switch from petrol to diesel in recent years as the supply of 3 year old diesels has been growing. If owners have remained loyal to their chosen fuel type the costs have soared. Diesel owners will now be paying £1,373 per annum compared to £940 in 2004. an increase of almost 47%. Petrol drivers, on the other hand, will also have suffered an increase from £1,145 to £1,478. or 29%. What underlies this different rate of increase is the fact that the premium for diesel is now greater than ever, at 50p per gallon - i.e. 555p versus 505p.

On the one hand the total annual fuel costs for petrol are still greater than for diesel – £1,478 versus £1,373 – thereby supporting the argument to purchase a 3 year old diesel. However, this decision is not so clear cut when the used car market charges a premium of £600 to £800 for a mid sized family diesel. Having paid the premium for the car it will take approximately 7 years to recover this additional outlay. This is because there is an annual gain on fuel costs of £105 – i.e. £1,478 subtract £1,373 – and after 7 years the saving will amount to £735. Of course this assumes that the price difference between the fuel types remains broadly similar and that annual mileage continues to be 12,000. There would be little difference in the trade value between the fuel types after 7 years because both cars would be 10 years of age with trade values measured in the low hundreds of pounds. At the moment there is nothing to suggest that prices of used diesels are converging on their petrol counterparts and it may not happen in the foreseeable future. However, the financial argument for diesel ownership is less persuasive, and for diesel to remain in favour it may need to rely upon its popular driving characteristics.

What the market has not had time to react to is the dramatic year-on-year increases in fuel costs because much of this increase has only taken place in the last few months. Annual fuel costs for an average 3 year old diesel have increased by £273 – i.e. £1,100 to £1,373 and by £186 for the equivalent petrol car. This represents an increase of 25% and 15% respectively.

FUEL COSTS TO CHANGE BUYING PATTERNS

There is little doubt that, as existing owners prepare for their next change, all these considerations will have a bearing on the choice that is made.

The extent to which this happens depends on how much higher fuel prices will rise. There are predictions that petrol prices may spiral from the current levels of 111 pence per litre to 150 pence per litre by September with diesel also moving up proportionately. As used car buyers change buying patterns we expect that this move away from Diesel will feature more prominently in our sales.