My memories of ‘charity cars’ are not fond ones. Back in the late 1990’s the dirtiest public auction in metro-Atlanta would line up about 50 of these vehicles for the beginning of their sale. The acrid smell of blown head gaskets and leaking oils of every type would soon emanate the auction as most of these vehicles were pushed past the block. Back then you could buy a non-running car for about $20, and a running one for no more than $250. The high bidders were usually dealers, who would then bring back the same vehicles the following week and try to sell them for huge markup’s.
I remember a Volvo 780, rare as hen’s teeth, going through the ‘charity’ sale for $70 at Logandale Auto Auction and then being sold the following week for $1000. The jump box had mysteriously disappeared at the opening of that auction. So there was no choice but to push the car through in non-running condition. The question I asked a friend of mine that evening was ‘Who just got screwed?” The auction received a lower sale fee for the first run. So they got screwed a little bit. The new owner may have been given a vehicle with more issues than an MTV mock-umentary. They were a bit more up the creek. But the ultimate screwed parties were the charity and the poor benefactor who donated the vehicle in good faith. Thankfully, these days it’s a much different ballgame.
Charity cars are now becoming a big business at the auctions. 30% of the cars sold through Insurance Auto Auctions, one of the largest auto auction networks in the country, now go overseas. You want service? The buyers services department at IAA supports ten languages and has dealer relationships in all six of the inhabitable continents. You want bidders? Thousands of dealers (and public) can bid online or buy on site. Most buyers will send representatives to inspect the vehicles, and then bid online. The more popular vehicles can end up with bids from China, Ghana, and Mexico before they are finally sold to a wholesaler in Belarus or Turkey. The good ol’ boy is SOL these days.
The competition is stiff for a long list of reasons. The decline of the dollar. Low cost of labor overseas. Reasonable shipping rates from American ports. They all play a hand in the bidding process. But the one big ace in the hole is the level of standard equipment in the American market when it comes to vehicles. The average car in the United States can far eclipse a ‘loaded’ model in a developing market which means that these vehicles will end up with a very strong demand overseas.
After all is said and done, most buyers will end up with a vehicle that is still 25% to 35% below market value. Even after all repairs are done. Tens of millions of customers are seeking affordable transportation and your old jalopy sitting on the driveway may just be the ticket in the developing world.
Out of the 25,000+ vehicles that were donated to charities last year, the overwhelming majority of them are still in running condition. Those vehicles may require major mechanical work or have damage. They may be unpopular or guzzle gas. But in the developing world they are still sought after. Especially in those countries that are oil rich and cash starved.
In the next Hammer Time installment you will see how three different markets, Belarus, Bolivia, and the UAE, take your unwanted cars and give them a new life.
I always love to come to class when Mr. Lang is teaching.
Agreed. Mr. Lang should start his own website, TTAFC.
the poor benefactor who donated the vehicle in good faith
The person donating the car most certainly did not get screwed prior to 2005, I believe. Up until that time you did not need to claim what the car actually sold for, just some approximation of the blue book. For instance, the BB retail on a POS ’96 S-10 in Y2K was something like $2500. If you were in the highest tax bracket then you could potentially clear ~$900 for something that would have otherwise been towed to a scrap yard.
Confidential to Ed Niedermeyer-any idea why when I put in < and > it replaces them with the unicode < ? Once I edit the post they come out correctly. Is it just me?
can we deduct the emerging market value when calculating the charitable contribution amount? ha
Very interesting article. So, is this where cars from Goodwill auctions go? They advertise that like crazy in Cincinnati. Also, I know of an outfit run locally by (I think) Nigerians, who collect cars – mostly Hondas and Toyotas for shipment to Africa. Thanks for bringing out the “undercurrent” market, and I want to hear more. Like Educator Dan, this is one class I enjoy attending!
It all depends on the particular charity. The VOA operates may retail lots where the hum-drum cars that are sold, while the vehicles that may be considered a “classic” goes on E-bay. Another local charity also has a retail lot where they sell cars that ran when donated, once that they have repaired, and project worthy vehicles, the rest go to a local wrecking yard. Speaking of wrecking yard one of the local ones works with a couple of charities to send many of the vehicles directly to scrap.
The IRS went out of their way to get the donated car deduction modified. They actually tracked over 50 cars from start to finish to make their point. That was one of the last great middle class tax write offs. Too bad companies like GE don’t get hosed, they actually got a tax refund for 2008.
Donations are way off around here, the local junkyard pays per pound more than the silly tax deduction ends up being. Especially for tanks and pickup trucks.
The big losers are the charities, not that the IRS gives a darn about them. At least I got my 1980 something F-150 in before 2004, the tax write off was far more than that POS was worth to anyone.
FYI: anyone looking to donate a Holden WM Statesman/Caprice to charity can just leave it at my front door kthxbye.
Question: would it be worth it to donate a car to charity for, say, $1000, then buy it at auction for $100, then donate it again somewhere else for another $1000, wash rinse repeat?
You only get to deduct what the car actually sold for, so if it sold for $100, you only get to to deduct $100 off your income. If you’re in the top tax bracket, you would owe around $35 less in taxes.
under the current tax code you have to get the car independently appraised and that is the value of the deduction. previously, you could declare an “estimated value” which was often inflated and frequently abused. the relationship between the value at auction and the value you declare on your taxes really only depends on the appraiser and how close he is to getting the price right.
Ditto Dan and Zackman! VERY enlightening!
As others have alluded to, the people getting most screwed (before the IRS changes) were the taxpayers not taking part in the scam. I believe you could “self appraise” your vehicle up to $5k; anything higher than that and you had to get a professional appraisal (which was probably also inflated). So, if a car sells at auction for $250 and there are $200 in “expenses” (towing, auction fees, paperwork fees) then the charity gets $50. Meanwhile the “generous” person donating claims the vehicle value at $5000 and pockets more than $2000 in tax evasion. I’m not so sure if a “charitable” corporation helps people more with $50 than the government does with $2000.
The rules changed so that (I think) you can now only claim what the vehicle sold for at auction or maybe only what the charity actually receives. That seems perfectly reasonable to me.
The money saved on taxes by the taxpayer goes to use too. Instead of being squandered politically it ends up benefiting local businesses. It’s not really a one sided situation.
GS650G,
Agreed, I’d rather have the person who actually earned the income in the first place to get less of it taken away by bureaucrats. The taxpayer could inject that extra money into the economy as they see fit rather than it going to politicians who’ll only try to buy votes with stupid and ultimately self-defeating programs like Cash for Clunkers.
All I know is that my $800 (KBB) old Ranger would have traded for not over $600, but provided a $1400 tax deduction. Of course, in January they were gearing up for BHPH tax-return season … or Central America.
I believe you can still self-appraise, up to $500. I work both sides of this, I am treasurer of a charity that accepts car donations (through a car donation vendor, they handle everything and just send us a statement and a check for the value minus expenses and their fee), and I’ve also donated. If the car sells for more than $500, the vendor provides the donor with a receipt showing the amount it sold for. If it sells for less than $500, the donor gets a receipt simply saying “less than $500.”
The expenses come out of the charity’s end, not the donor’s end. Which is consistent. After all if you donate to a charity by credit card you get the full amount as a writeoff even though the charity gets less (your donation minus credit card fees).
American used cars aren’t just a bargain for developing countries. Since the value of the US dollar has cratered Canadians can save 25 to 30% on almost new cars and they can usually be imported fairly easily.
I recently bought a VW GTI with 20K in on it in the US for half the cost a new one would cost at home. Definitely something Canadians should look into before buying at home.
Unbelievable number of salvages, Katrina recoveries, donated cars was sent to CIS/Russia. Buyers who worked at auctions scavenged all possible trash, polished and cleaned it to look youngish and then send overseas.
Consequently, the perception of US car market is of a place where ALL cars are not loved, cared for, maintained and generally abused in any possible way. And all auctions are mere scams to bereave gullible consumers of their hard-earned.
I have been shipping cars overseas for the last 40 years. Most of the cars i ship go to Scandinavia and the continent. Mostly older classic european cars. Many people call us wanting to ship cars to the middle east & west africa and most of these cars are brought at auction. Some are running some are not. They want to place 4-5 cars into a 40 ft container. It can be done but the loading warehouse has to build special ramps inside the container. Many of the containers were not braced well and all hell broke loose. Now many of the carriers will not allow more then 3-4 cars to be loaded into a container. A few years ago we were shipping 38 ft Lincolns in 40 ft containers and one got delivered to the pier without being strapped down. I received a call from London when it arrived that the front and back of the container was all bowed out. I thought the car was destroyed but all it need were new front and rear bumpers.
We have so many used cars in this country that many of them are shipped out to the Middle East. Many of the Japanese manufacturiers have contracts with the car carrying ships to take their off lease vehicles to the middle east. This helps them to keep the resale value up at the auctions. Otherwise they would be worthless.