One day while traveling in a car with my brother in law and friends we started having discussions on which car is the best? Now to tell some car as the best we had to look into a whole lot of things and the important one was the price.So we kind of settled on which is the car we should be buying if we were buying for the first time and with our own money. So the BMWs, Mercs and the Audis were out of the picture. For me almost all cars were out of the picture as I was participating in this discussion with no job and a huge education loan on my head. But I wanted to be in this conversation and I imagined myself in my old job.
We started discussing from hatchbacks going as far as SUVs like Innova and Scorpio. My brother in law had owned Scorpio and owned an Innova. According him Innova had not broken down had a good engine and good handling. The image of quality that is associated with Toyota. When it came to scorpio it was mentioned it had good power can hit high speeds easily and was rugged. Exactly the things Mahindra wants to associate itself with. So know I began thinking whether he is feeling these things because that is what he had in mind before buying them or was it unaided and unbiased opinion. A few days ago I saw my friend praising his Ford Figo on Facebook. I began to think as long as a car doesn't breakdown at crucial times the things related to feeling like great power, quality are more or less derived from brand associations.My brother in law did not remember his Scorpio breaking down but when asked the first thing that came to his mind was if you are looking for power Scorpio was the one though he had no problem with his Innova when it came to hitting high speeds.
Lesson number 1 for me was it is hard to differentiate power and handling etc unless I am real expert at it. I did go in both Innova and Scorpio and really couldn't differentiate and it's the power of peer opinion pressure that made me conform to the opinion of Power- Scorpio, Handling-Innova
Next the discussions rolled on to hatchbacks for many of us buying hatchbacks the mileage was a big factor. Even for the same car diesel and petrol variants make a lot of difference when it comes to buying. My brother in law argued the Diesel variant of the Punto he had bought was more value for money than the petrol variant. I decided to analyze this claim. His reason was to go to bangalore and come back it takes Rs.1000 of petrol and Rs.500 of diesel. Now the difference for a Petrol model and Diesel model is Rs.1 lakh. The difference in mileage is 4km/litre (16 kmpl vs 12kmpl). The difference in petrol and diesel is Rs 10 per litre. So for every litre a diesel car gives a saving of Rs.22.5 (10+4/16*50, assuming petrol price is Rs.50)over a petrol car.
Now to the interesting fact: To breakeven with Rs.1lakh differential a diesel car should consume 4444 litres of diesel or should cover 71104 Km. Now I asked my brother in law how long does he keep his car the answer till it reaches 60 thousand to 7 thousand km. I have not taken the present value of the 1 lakh differential. So rational decision making says if people are going use cars mostly in city and sell it once it reaches close to 70,000 km then they should be buying a petrol car
But it doesn't work that way the classic rule of "Segregate gains and aggregate loses" does work. People don't mind paying a high price initially if the gains are distributed and visible. A saving of rs 22.5 per litre does look significant (half litre diesel price) this is what was the difference between a Diesel and petrol car.
So even though a car is a high involvement category where people seek a lot of information and it is believed they take rational decisions. The decisions are not so rational after all....
