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Wednesday, 17 July 2013 10:25

Petrol Prices – are they as steep as we think? The real cost of motoring.

Written by  Ross Callander
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Since the early 2000s, we as a country have seen a marked rise in fuel prices. Sporadic price hikes have led a large proportion of the public to believe that fuel is priced unfairly and that too much of the price is made up of taxation. Whilst it is true that a large percentage (around 60%) of the price is made up of tax, it is worth considering a few factors that may just sway your opinion of this necessary liquid. 
 
 
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Diesel, and other fuels, is manufactured from crude oil, a raw material often found in extremely hard to reach places. Much of the crude oil that ends up as diesel is sourced from deep-sea wells and involves a huge degree of risk, and this is after the extensive task of actually finding the oil. Simply mining this material is a huge expense in itself but it is only the first stage in making usable fuels. The crude oil needs to be refined in order to separate the usable parts (diesel etc.) of the oil from by-products such as bitumen. After this stage the refineries then add additives in order to establish controls such as sulphur levels and a standard burn rate. Modern engines have much finer mechanical tolerances than earlier engines and so even a minor difference in diesel properties can result in a damaged engine – and thousands of pounds of compensation on the part of the petrol companies. Once the fuel has been made it then needs to reach the customers, so it undertakes a very long journey across land and sea, which marks the final leg of the process, after which the fuel is either stored or sent to forecourts across the country. Considering the length of the procedure, the inherent risk involved in sourcing and refining it, the distance the product must travel and the finite quantity of crude oil it seems reasonable that the product reaches us at only a few pence per litre more than bottled water. The biggest factor that affects people’s perception of comparisons such as this is that people rarely buy bottled water in quantities of 30 litres or more – especially not every week. Then again, many people might not view bottled water as a necessity, whereas a vast quantity of the population rely on their cars (and in turn, fuel) to travel to their income source. 
 
Inflation and historic pricing figures make for some interesting comparisons when discussing the price of petrol and the population’s perception of said pricing. Traditionally, as time goes by, currency loses its value, and so you need more of your currency each year to purchase the same item. And so what may have hypothetically cost £20 last year could cost £21 this year. With the availability of historic inflation figures it is possible to deduce the percentage increases of products and whether they have in fact seen significant increases. It is also worth keeping in mind that the pound coin was introduced in 1983 but, due to inflation, it is now worth just £0.36. For the purpose of studying the cost of motoring it makes sense to examine the price of a fairly standard car. In this case it’s the Volkswagen Golf 1.6L diesel. 30 years ago, in 1983, the Golf cost £6,974 which, when adjusted for inflation, would cost you £19,340 in today’s market. If you were to buy a Golf today it would cost you just £18,425 – suggesting that the car would actually have felt more expensive in 1983. This is pretty significant, since you get a lot more car today than you did 30 years ago. In almost every aspect the 2013 model outperforms its older brother. It is faster, more economical and more ecologically sound – despite being 500kg heavier and 11% longer. Advances in mechanical engineering have led to the development and advancing of engines – particularly in their ability to produce power whilst using less and less fuel. By examining the cost over the first three years for the Golf in 1983 and 2013 it is possible to draw the conclusion that the cost of ownership (excluding insurance and servicing) is 10% less in 2013. This is based upon factors such as an 81% increase in fuel efficiency, meaning the car requires less fuel overall to travel the same distance, as well as the fact that the 2013 model is not subject to Vehicle Excise Duty due to its efficiency which saves the motorist £235.72 after an inflation adjustment.  
 
It is also enlightening to consider the price of buying the car from new against figures such as average household income. Back in 1983 you’d have to fork out a huge 68.65% of your yearly earnings in order to purchase the Golf. Interestingly, the cost to buy the Golf back then was nearly 27% of the price of the average house, which is revealing because it highlights the relatively high price of a car compared to what many people consider (with good reason) to be their largest purchase. It also reveals the huge increase in housing costs in today’s day and age, as the 2013 model costs just 7.49% of the average house’s price. 
 
There are many things that have become less expensive over 30 years, and perhaps it is the fact that so many items have seen an overall price reduction that draws so much attention to commodities that do see a price rise. This could be a particularly relevant notion when you consider that fuel pricing never truly leaves the public eye. Newspapers speculate about figures to the point that it could be misconstrued as a really rather clever marketing ploy on the part of supermarkets in that they only need to suggest that they will reduce their prices to reach the pages of our country’s periodicals. Computers, for example, have seen a huge decrease in their pricing which is largely due to the fact that 30 years ago personal computers were still relatively new technology. Apple’s ‘Lisa’ was released in 1983 at the staggering (and not adjusted for inflation) price of £9,045.48, which is around £25,126.32 in today’s money. The leaps in technology mean that what was top of the line computing power 30 years ago is laughable technology now, particularly when you consider that, today, you can buy a supercomputer for £4000 and a high end Apple laptop for £1099. 
 
Last modified on Friday, 11 October 2013 12:21