Total Cost of Ownership: A Gasoline vs. Diesel Comparison

As fleet owners look for fuel efficiency – and consider alternative powertrains – researchers at the University of Michigan Transportation Research Institute have examined the total cost of ownership of vehicles to give a perspective beyond simple initial purchase price and fuel cost considerations.

The report compared diesel and gasoline models of vehicles in which manufacturers offered both powertrains. Researchers looked at passenger cars, sport utility vehicles and medium-duty (Class 2) pickup trucks.

Some of the key findings of the report:

  • Most diesel vehicles provided a lower total cost of ownership (TCO) than comparable gasoline models.
  • All diesel models delivered better fuel economy, which lowered operating costs.
  • Though most diesels initially cost more than comparable gasoline models, the resale value of most diesel vehicles was generally higher.

Medium-duty pickups had the largest MSRP price differential between gasoline and diesel versions, but price differentials varied significantly in different segments, with luxury cars and SUVs having relatively small differences.

The researchers developed their model for TCO using three- and five-year estimates for repairs, fees and taxes, insurance, maintenance, depreciation (using pre-owned vehicle auction data) and fuel costs (using average fuel prices based on government data). U.S. Environmental Protection Agency, National Highway Traffic Safety Administration, Bureau of Labor Statistics, Energy Information Administration and Federal Highway Safety Administration data were used for the study, along with information from Mannheim Auctions, Blackbook and Vincentric.

The basic equation used was: Depreciation (Original MSRP – Resale Value) + Fuel Costs + Repairs + Insurance + Maintenance

While most diesels provided a positive return on the initial higher purchase price over the three- and five-year periods, the amount of return varied from vehicle to vehicle. On resale values, the report noted that ‘the resale market is interesting because it has a formal auction process where dealers bid on used/pre-owned vehicles to sell in their used vehicle business. As independent businesses, automotive dealers carefully manage their used/pre-owned inventory to maximize their profits. As such, they generally do not take chances by paying more for a vehicle than they can sell it for in the marketplace.’

The study found that 11 of 12 diesel models held their value better than comparable gas vehicles over the three-year timeframe.

One of the observations of the report was on the diesel take rate – the percentage of consumers who select a diesel when both diesel and gasoline powertrain options are offered. The average diesel take rate for many passenger cars and SUVs grew from an average of 10% in 2008 to 30% in 2011. In the same time frame, in the medium-duty pickup segment, it ranged from 59% to 63% – so, clearly the market favors the diesel option in the medium-duty pickup segment. The report also noted that the consideration rate for diesels (the percentage of consumers who would consider purchasing a diesel) has risen in recent years, according to consumer research from CNW Research.

The three-year TCO measurement showed mass-market passenger cars ‘save the owner significant money,’ ranging from $3,128 to $5,013. The diesel pickups had more mixed results, with the segment leader saving the owner an estimated $3,673 more than the owner of the gasoline-powered version; the least favorable results in this segment found the gasoline model cost $1,395 less during the three years. In the luxury segment, savings were substantial, ranging from $3,063 to $13,514.

Part of the reason for the varying pickup TCO numbers was the significantly higher price premiums, which ranged from $7,448 to $14,282, charged for diesel models. These higher price premiums affect the depreciation calculation (original MSRP minus resale value) and, thus, play a large role in the TCO analysis. After depreciation in the TCO tabulation is the cost of fuel; when the gap between gasoline and diesel fuel prices is large, it negatively impacts the TCO of the diesel option.

The five-year picture of TCO in the study showed diesel pickups generally holding their value versus their gasoline counterparts. For passenger cars and SUVs, the TCO advantage ranged from $3,063 to $13,514 over five years compared to gasoline versions of the vehicles.

The report concluded that most of the diesel vehicles studied have a lower TCO and are worth the higher initial purchase price. It found that diesels compete well in the U.S. market.

The significance of this study is magnified because the number of diesel models is rapidly increasing in the U.S. At the end of 2013, there were 37 clean diesel models in the U.S. market. In 2014, 10 new diesel models are forecast to be launched. By 2017, there could be more than 60 diesel models on the American market.

Andreas Sambel is director of marketing for diesel systems at Robert Bosch LLC.

LEAVE A REPLY

Please enter your comment!
Please enter your name here