American cancer society car donation

PERHAPS YOU'VE SEEN THE FLYERS or heard the ads on the radio: Donate your used car to charity and we'll arrive at your home, arrange the title transfer, and tow away your old clunker, giving the proceeds to your favorite charity. Over the past few years, hundreds of popular charities have launched such programs as a way to raise money, including the Red Cross, MADD, Big Brothers/Big Sisters, Easter Seals, and the United Way. To most people, it sounds like a great deal. Getting rid of an old car is a hassle. Giving it to charity, on the other hand, leaves you with a warm feeling--and a nice tax deduction, too, since the government allows those who donate a used car to deduct its full "fair-market value." So it's no surprise that car donation drives are increasingly popular, especially with civic-minded upper-middleclass types. Who ever said coddled yuppies don't have hearts?

Unfortunately, there's a catch, though you're unlikely to hear about it from television ads, phone operators, or tow-truck drivers. Just because Uncle Sam gives you a $1,000 tax deduction for donating your car doesn't mean that Easter Seals will receive a check in the same amount. The problem with car donation programs is that most of the benefits accrue not to the charity, but to the person who donates a car. So popular are these programs that I didn't have to look far for an example to demonstrate how badly they're flawed. In early March, the editor-in-chief of this magazine, Paul Glastris, bid farewell to his broken-down 1991 Volkswagen Jetta, and donated it to the good folks at the American Cancer Society. Like millions of Americans, Paul liked the idea of helping a charity, and didn't mind the tax break, either. The Jetta was, he admits, "undrivable." It had a burned-out engine, more rust that Michael Jordan's knees, and "what you might call `ever-expanding head and leg room'--the interior molding was perpetually disintegrating onto the passengers and driver," he told me. Paul's mechanic told him that the car was junk.

So he picked up the phone, dialed the American Cancer Society's "Cars for a Cure" program, and arranged for a pickup. Shortly after, he received a receipt listing the car's mileage (80,000) but saying nothing of its woeful condition or estimated worth. (Under federal law, tax deductions are do-it-yourself.) Paul followed the charity's instructions to visit either the Kelley Blue Book or the National Automobile Dealers Association (NADA) Web sites to determine the fair-market value of a '91 Jetta, which in turn determines the size of his tax deduction (for people in the 28-percent tax bracket it's about one-third the value of the car). NADA offers a three-tiered system--High, Medium, Low--to determine the quality and value of a used car. Even a car that rates "low" must be able to pass local inspection standards and run safely. But the giver is the sole determinant of the car's value, so there's nothing stopping Paul, or anyone else, from claiming the low estimate ($2,475), the medium one ($3,425), or even the high one ($4,150). For Paul, that corresponds to a tax break of anywhere from about $700 to about $1,200.

So how close are these figures to the actual value of Paul's dilapidated Jetta? There's no category for "heap of junk," so to find out just what price his car might fetch, I called Insurance Auto Auction, the company that will auction Paul's car. (For cost and convenience, most used cars aren't resold to customers, but auctioned for scrap.) They estimated that a '91 Jetta in the condition described would bring about $100 to $200. In other words, Paul stands to receive a tax deduction approaching $1,000 for a car worth, at best, $200.

But the scandal doesn't end there, because not all of that sum will go to the Cancer Society. That's because most charities don't have the resources to run car donation programs themselves, and instead rely on private fundraising companies to run their program. These companies enjoy a virtual monopoly that lets them extract an exorbitant chunk of the car's value: From that $200, deduct the towing fee, the title-transfer fee, advertising fees, and employee salaries--all before the company even takes its share of the profit. By the time the check for Paul's car reaches the charity's coffers, the American Cancer Society will be lucky to get $100.

Accounting Only Enron Could Love

For all their seeming practicality, donated car programs are one of the least efficient ways to help charities raise money. They also drain much-needed tax revenue. The federal government doesn't track just how much revenue is forfeited in this way--nor do most states--but a study from the California attorney general's office provides a glimpse of just how wasteful this system can be. The study revealed that of the $37 million raised by commercial fundraisers in 1991 through the sale of donated vehicles, only $11.5 million reached charities. The remainder went to the fundraisers. And keep in mind that that $37 million is the money raised by selling the cars--it's a fraction of the amount taken in tax deductions by those who were able to deduct the full Blue Book value of their cars. So the problem is twofold: Charities are victimized by fundraisers to which they're beholden, while the IRS offers tax deductions to raise money that charities never see. Extrapolate California's example across all 50 states and the amount of tax revenue lost is staggering. The federal government is forfeiting hundreds of millions of dollars in tax revenue in order to allow charities to collect a fraction of that sum. It's the practical equivalent of the Pentagon's $600 toilet seats.

That hasn't stopped the programs from flourishing. These days, ads for car donation programs are everywhere--radio, television, newspapers. The American Kidney Foundation's "Kidney Car Program," the largest such program in the country, collected 72,000 vehicles last year, a 78 percent increase just in the last five years. Several years ago, the Better Business Bureau estimated that the average metropolitan city donates between 8,000 and 10,000 cars a year (that equates to $4 million to $5 million dollars in revenue)--a figure industry experts consider extremely conservative and outdated. Today, an educated guess would put the national figure at around two million cars donated to charity annually, with a value of around $1 billion.

According to Bennett Weiner, chief operating officer of the Better Business Bureau's Wise Giving Alliance, there is no single factor for the sudden proliferation of car donation programs, but a confluence of several factors: consumer convenience, cash-strapped charities, and old-fashioned greed. Like any competitive industry, charities must vie with each other for a limited pool of donations. When first introduced in 1978 by the Davis Memorial Goodwill, which serves the greater Washington, D.C. metropolitan area, car donation drives were an intriguing new way to add to this pool. In its first year, Davis Memorial received only five vehicles (compared with 4,063 cars last year), but this was enough to begin a national trend. Before long, private fundraising companies cropped up and began marketing their services to charities. By taking care of the logistical problems that were often difficult for charities to handle--towing and transfer of title--these companies made car donation programs not only profitable, but easy to implement. Their message, says Weiner, was appealingly simple: nonprofits "don't have to put up any money ... don't have to do anything but sign a contract." In exchange for lending their name to these private fundraising companies, charities receive a welcome infusion of new funds, which Weiner says is considered "found money," since the charity does little more than cash a monthly check. Coupled with the public's inherent loathing of used car dealers, it's easy to see why there has been a national surge both in charities participing in these programs and people donating cars to them.

Vehicle Vultures

Because most charities rely on private companies to facilitate their car donation programs, they're essentially helpless to prevent fundraisers from keeping the bulk of the proceeds. To understand why this system yields so little for charities, it's necessary to understand how private, for-profit fundraising companies operate. Fortunately, some states, such as California, require fundraisers to detail their annual expenditures and gross income. These reports offer the best glimpse of where the money actually goes and how third-party agents often gouge charities with exorbitant commissions and fees.