Car Donations Continue To Stall

March 15, 2011       Mark Hrywna      

Five years after federal tax law changes shifted the landscape of vehicle donations, charities have been revamping marketing strategies for their donation programs.

Most nonprofits saw a significant drop-off in vehicle donations after new tax reporting regulations went into effect in 2005. The donations have not rebounded to previous levels but there have been some exceptions.

One exception might be Lakewood, N.J.-based Kars4Kids and its ubiquitous radio advertisement featuring a child and man singing its toll-free number.

“Kars4Kids bucked the trend because we were fairly localized in 2005 and have since gone on to become a national presence, quite possibly the largest national car donation program of any charity, and certainly the most recognized,” said Josh Smith, a senior analyst with Kars4Kids. The group, however, does not release specific figures on its donations received.

“Creative marketing and positive word-of-mouth from satisfied donors allowed us to increase year-over-year. However, this past year, we saw a slight dip in car donations, which we attributed to overall market forces, but as consumer confidence grows and car sales experience a comeback, we are optimistic that 2011 will see an increase in car donations,” he said.

Kars4Kids is the charitable arm of Joy of Our Youth, a national organization “providing for the spiritual, emotional and practical needs of Jewish children from impoverished or dysfunctional families,” with the goal of getting Jewish kids enrolled in Jewish schools. Joy reported $25 million in revenue on its 2009 federal Form 990 filing with the Internal Revenue Service (IRS).

According to The Wall Street Journal, car sales during January 2011 were more than January 2010 in every category, with the largest increase being minivans at 60 percent and midsize SUVs at 41 percent. The National Automobile Dealers Association (NADA) projected new vehicle sales will reach 12.9 million units during 2011, up 12 percent from 2010.

Ventura, Calif.-based Cars4Causes experienced a 12-percent drop in vehicle donations after the law changed, and a 4-percent decline in high-quality donations. Since 2005, Cars4Causes expanded outside of California to make up what would have been reductions in revenue of 20 to 25 percent.

Nationwide, the IRS reported car donations dropped by almost 68 percent in 2005, from nearly 1 million donations in 2004 to 311,451. In the latest available data, car donations hit nearly 332,000 in 2007, down about 16 percent from the 400,000 in 2006. Individual charities have reported declines in car donations, with programs particularly hit hard by the downturn in the economy and the federal government’s Cash For Clunkers program in 2009.

The American Jobs Creation Act of 2004 limited taxpayers to the gross proceeds from the sale of a car rather than the “fair market” value, if the claimed value exceeds $500. For a person in the 33-percent tax bracket, a car valued at $4,000 would have been a $1,320 deduction, but now the deduction is determined by the nonprofits’ sale price — which could be lower at auction.

The National Kidney Foundation (NKF) saw an immediate drop in car donations of about 40 percent after the new tax laws in 2005, according to Chad Iseman, director of NKF’s Kidney Car Programs. There has since been some leveling off, a bit of growth, about 10 percent annually from 2007 to 2008 and into the first quarter of 2009, he said.

Jeanene O’Brien, vice president, vehicle provider marketing for Insurance Auto Auctions (IAA), which works with hundreds of charities, including NKF, said the largest drop in donations occurred in 2005, with a “definite leveling” ever since. Car donation is seasonal, she said, and usually pops at the end of the year when charities make a push and encourage people to continue to donate their used vehicles.

“What we wanted to do is be more targeted in our marketing approach,” Iseman said, so rather than a lot of printing and direct mail, the foundation took a more interactive and targeted approach, incorporating social networking, paid advertising and search engine optimization (SEO).

Iseman said the value of vehicles is starting to pick up, something that had declined after 2005 because donors weren’t sure what they could take as a deduction.

While some charities with programs are not marketing as aggressively or as efficiently as before the legislation change, O’Brien reports that charities are still looking into potentially starting a donation program or re-establishing one because of the need for additional revenue streams. “It doesn’t take a tremendous volume, from a dollar perspective, to raise tremendous dollars,” she said, adding that while the average cash donation to a charity might be less than $20, a vehicle donation could net a charity hundreds of dollars.

“People are keeping their cars longer, they are selling them for anything they can get — even scrap metal — so people are not donating their cars to charity right now,” said Jatrice Martel Gaiter, executive vice president of external affairs for Volunteers of America (VoA) in Alexandria, Va.

“The legislation has ripped the legs out of car donations as a viable fundraising model program for many nonprofits, including several of our local affiliates,” Gaiter said. “We’re trying to look at other ways, such as better marketing, making it more clear to the donor exactly how the car will enhance the lives of people who need transportation to jobs or daycare.”

The number of car donations and gross revenue to VoA has dropped to one–tenth of what it was a decade ago, according to Gaiter. The organization generated $20 million in gross revenue during 2001 from some 50,000 donations, compared with $2.6 million last year from about 5,400 donations. The largest drop over the past decade came after the federal legislation went into effect 2005.

“It’s been a diminishing revenue stream not just for us but for many of the national charities that have depended on this as major source of funding for their programs,” Gaiter said. VoA now is focusing more on working directly with affiliates on development efforts, to increase training, awareness, use of social media and cultivating contacts to mainatain a good fundraising base.

“Our private fundraising and events, are steady, and continue to grow. We are growing in our private philanthropy,” she said, as well as looking at corporate partnerships. Year-over-year revenue for direct mail, she said, was up 11 percent in the fourth quarter of last year.

The drop in car donations caused VoA to change the way they communicate about their program focusing on the impact and relevance of donations “in a much more personal way, resonating with donors and potential donors,” Gaiter said. NPT

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