31 January 2014

Purchasing Parity w.r.t. Rising Petrol Prices

Purchasing Parity w.r.t. Rising Petrol Prices

May 17, 2013 issue of Forbes India, one of the most respected business magazines in the world, carried a snippet on the sales of Small Cars in the last two financial years compared with the sales of SUVs in the same period and connecting the same with the Petrol prices. The conclusion drawn after comparing the two figures was as follows:

“With the increasing prices of Petrol, you would not be wrong to expect car buyers to prefer smaller, more fuel efficient cars. However, car sales data shows that instead of opting for more fuel efficient variants, buyers are going for diesel models that cost and pollute more, but lower running costs… The data shows more people are opting for diesel-guzzling (and therefore more polluting) SUVs, rather than petrol-efficient small or compact cars…)

If you read the above paragraph, you would conclude that we, as consumers, prefer to buy diesel vehicles, which have a running cost lesser than that of Petrol vehicles. There’s a merit in this argument. As a consumer, I would buy a product that has a lesser recurring cost. Now, let’s look at the data and try and understand where the journalist must have gone wrong.

Description
2011-12
2012-13
% Change
Small Car Sales
    1,517,407
        1,419,805
93.57
SUV Sales
        363,772
           553,660
152.20


In 2011-12, the Auto Industry sold 1,881,179 vehicles. The figure was at 1,973,465 in 2012-13, an increase of 4.91%.It is safe to assume here that this increase of 92,286 vehicles went to the SUV segment. There has been a de-growth of 6.43% in Small Car Sales, a figure of 97,602, which, according to the journalist has moved to the SUV segment. 
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