Australia is currently experiencing lively debate, and quite a lot of hype, about rising petrol costs. Petrol has approximately doubled in price in the past decade, with steep rises recently. Politicians are rushing to find ways to alleviate pressures on "working families", with the Opposition proposing to reduce fuel excise by 5c a litre.
How bad is the situation really?
the costs of running a car
- the annual cost of running a car, including depreciation, fuel, consumables and maintenance can vary from about $6,000 (for a light car) to over $20,000 (for a large 4WD), and is about $14,000 for the average "family car";
- there is significant variation between different vehicles in the same class - for most classes, the annual cost of the most expensive car is about double that of the most efficient;
- these costs have increased about 40% in 5 years;
- these costs are made up of depreciation over 5 years (49%), petrol (17%) and other costs (34%).
putting it in perspective
Quick calculations show that:
- if petrol prices double from 2007 levels, the annual cost of running a car will increase about 13% or $1,800 for the average family car;
- a 5c per litre reduction in fuel excise will save on average about $80 annually (0.6%);
- much greater savings could be gained by delaying the purchase of a new car, buying a smaller car, or choosing a more efficient car overall (not just fuel efficiency) - for example, buying a medium sized car instead of a large sedan or a 4WD could save about $1,500 annually, purchasing a small car instead of a medium car could save about $3,000 annually, and purchasing a more efficient car in any class could save similar amounts;
- as petrol prices rise, a hybrid car may pay for its increased initial cost in about 6 years.
Thus we can conclude that:
- Most motorists can significantly reduce their car running costs, even with rising petrol prices, next time they purchase a car, if they choose carefully.
- The fuel excise reduction is little more than political tokenism, especially since the Government is already making tax cuts that will return greater amounts to families.
While rising petrol prices are causing problems for some poorer families, the real problems are finding alternatives for petrol, and how much we'll have to change the way we live and build our cities - but that's another story!