Car Donations Sputtering

August 1, 2007       Mark Hrywna      

The American auto industry is in a historic decline, with the Big Three losing market share regularly as Toyota passes them by like they were standing still. So much for Commander Cody’s Hot Rod Lincoln.

Nonprofits have been at a loss, as well, when it comes to car donations, with some organizations attributing it to a regulation that took effect two years ago, but also citing sluggish sales in the auto industry and less attractive financing deals, among other reasons.

Despite the glimpse of a new trend in reversing the downfall, Volunteers of America (VoA) in Alexandria, Va., saw a 40-percent drop in donations since the changes, which went into effect Jan. 1, 2005. VoA runs human service programs, helping nearly two million people in more than 400 communities.

“We saw 75,000 cars a year at the height of our operation around 2004,” said Jim Hartman, vice president of enterprise programs for VoA. “Besides the initial drop, we saw an additional 18-percent drop between ’05 and ’06 and another 25-percent drop between ’06 and ’07.”

Hartman sounded resigned about the state of car donations. “It’s still a good way for people to help, but it’s not as attractive as in the past,” he said, adding that many of the charities he deals with report declines of a third to a half in recent years.

Car donation has become increasingly competitive as well, with nonprofits and for-profits expanding into new markets around the nation to make up for the decline in others.

The American Jobs Creation Act of 2004 changed the rules for the contribution of vehicles. Taxpayers are now limited to the gross proceeds from the sale rather than the “fair market” value of the car, if the claimed value exceeds $500. For a person in the 33-percent tax bracket, a car valued at $4,000 could have meant a $1,320 deduction. Now the deduction is determined by the nonprofits’ sale price, which could dip to a much lower price at auction. If sold at auction for $2,000 the donor’s deduction would be cut in half. If the car was not fit for auction, the nonprofit would simply send the car to salvage or recycling, getting even less for the donor and the charity.

Of course the donor could declare $500 without any documentation other than the confirmation of the donation. Yet that is far from the expectations, according to Hartman.

Instead of donating their high-value cars, Hartman said people are trading them in or selling them. “People seem to be keeping their cars longer,” he said. “We’re seeing 100,000-plus mileage often.”

Low finance rates have an impact as well, Hartman said. Because zero-percent interest rates boosted sales in recent years, “we feel a little surge when that goes on, but financing now is not nearly as attractive as in the past.”

The cost and time to run a car program has become much less profitable, according to Hartman. The benefit for the organization or the donor depends on the size of the organization, and how the program is promoted. Some nonprofits obtain three to five cars a month while some receive thousands.

Executives at The National Kidney Foundation in New York City believe a plateau has been hit from the decline during the past eight to 12 months. Kidney Cars started a car donation program in 1990 when the effort was virtually nonexistent within the nonprofit sector. Since then, Chad Iseman, director of Kidney Cars, said he has seen the growth blossoming to 733,000 cars from about 4,300 charities in 2000, according to the General Accounting Office.

Kidney Cars depends on its car program for almost 13 percent of its revenue. Last year, the car program raised $12 million of the total $96 million raised by the organization.

A slight increase between May 2006 and May 2007 of about 4 to 5 percent has Iseman optimistic. “We have a small 1 to 3 percent increase in the volume of cars and the net is up 4 to 10 percent per vehicle.”

People who donate are less affected by the legislation the further from the impact, Iseman said. “Today’s first-time donor sees this procedure as a regular process compared to those who donated five years ago and became disappointed in the drop of the deduction.”

While no average breakdown of figures exists for cars that could be valuable for the deduction seekers, Iseman estimates that around 10 percent produce a certain value. The per vehicle average is up from previous years, partly because Kidney Cars markets to affluent donors. “We’re also taking advantage of the lesser cars by not losing money. We’re making $70 to $100 on each vehicle net,” he said.

Almost half the vehicles Kidney Cars receives have been with their owners for more than eight years. To improve the nonprofit’s take, Iseman said there’s been a marketing effort to attract newer cars.

Kidney’s success comes primarily through the Internet. The car program revised the site to attract people searching for cars. Kidney also partnered with organizations, such as carsoup.com. “We’ve found that the online donated vehicle is worth 14.7 percent more than the usual,” he said.

Other groups don’t share the upbeat view of Kidney Cars. This time of year would usually see 40,000 to 60,000 cars a month moving to the Cancer Fund of America in Knoxville, Tenn. That figure is down to about 20,000 a month.

Ever since the legislation, things have gotten a lot tougher, said James T. Reynolds II, director of fundraising. He attributes 70 percent of the drop to the selling price rule. The balance he calls a result of, “the maturing of the approach as a fundraising outlet.”

The income was 20 percent of the organization’s net monthly revenue. The drop to about 10 percent meant the nonprofit had to engage in other fundraising techniques.”Only around 5 percent take a deduction because of the limited number of decent cars,” he said. “With 95 percent, we just break even, maybe bringing in $50 to $100 a car.”

With a slide in revenue, an organization doesn’t need extra costs for the program. Many nonprofits deal with vendors to handle the collection and processing of the cars. This saves time and work for the organization, but also decreases the income.

“We calculate on a 50-50 split with the Vehicle Donation Processing Center and with Car Program we obtain a 70-30 split,” Reynolds said. The 70-percent split from Car Program sounds good, but Reynolds has to handle advertising. He tries to work with free presses around the country and free radio. But he also deals with daily newspapers especially in high-population markets.

“We’re thankful to still be around, but right now we’re just plodding along,” he said. “Hopefully things will pick up, otherwise we’ll end up having to cut program services or overhead.”

According to Kidney Cars’s Iseman,”Many car programs don’t have a position to oversee and monitor the price of the vehicle sold at the auction or to put pressure on the auction for more money on cars. I also concentrate on minor upgrades that result in higher prices for the cars.”

One such example is replacing an inadequate battery. “An upgrade could be $60 to $100, but could add $200 to $800 on the sale price,” he said. “The car changes from a non-running vehicle to a running one.”

Management also puts pressure on recyclers to obtain more volume per car. “We get more money per vehicle after the legislation, in part, because of the increase of the price of steel,” he said. “And we reduced our costs by towing from shorter distances — vendors don’t necessarily have a person representing the charity who works full time for the charity.” Despite the downslide since 2004, Iseman expects either an upswing or the present level to continue. “I think car donations are still a good option for people to help the organization,” he said. “But I’m not betting on changes in Congress — they’re dealing with bigger issues.”  NPT