By Rob PerezSunday, June 17, 2001
It's supposed to be win-win.
Donated cars hit
You donate an older car to charity, get a tax deduction and the charity gets some extra cash. A middleman sells the car, takes care of all the hassles and paperwork and earns a small cut in return.
Somewhere, though, someone is winning more than others.
Take the case of E.K. and Marianne Whiting.
In 1998 the Kailua couple donated their 1985 Volkswagen camper to a charity through a dealer who appraised the van at $8,400.
Before the couple donated the vehicle, someone offered $5,000 for it.
The Whitings later learned the van sold for $500 -- and the charity got only $400.
"We felt horrified and betrayed," said Marianne Whiting.
The National Kidney Foundation of Hawaii, in dealing with the same middleman, grew so suspicious that it set up a sting.
The charity sent someone to the dealership to purchase a used BMW that had been donated in the name of the foundation. The dealer didn't know the buyer was affiliated with the charity.
The foundation representative purchased the car for $4,235. Deducting the fee the dealer was supposed to get, the charity says it should have received around $4,100.
It got slightly more than $1,000, along with a notice from the dealer that the car sold for $1,150 -- far below the actual purchase price, according to the foundation.
Although both examples were from 1998, they underscore the problems that still can happen when charities have little or no contact with the people who donate vehicles and rely entirely on independent vendors to process the transactions.
So who is losing here?
Not the donor, who gets the full tax deduction no matter how much the car sells for. Most charities aren't complaining, either, because they do basically nothing to collect thousands of dollars they may not have gotten otherwise.
But what of the middleman? That's where the picture blurs.
The Internal Revenue Service and some national charities recommend that people deal directly with charities in making car donations, which have soared in popularity since the mid-1990s.
But for many local charities, especially small ones on tight budgets, processing vehicle donations is not practical. Instead, they refer donors to an independent company and typically don't hear from the donors again.
In some cases the charities don't hear from the donors at all. The car owners contact a used-car dealer who takes donations (not all do), and the charity only learns of the donation once a check from the dealer arrives in the mail.
Tips on donating cars
>> Work directly with the charity as much as possible.
>> Verify that the charity has the required tax-exempt status. One resource: the Internal Revenue Service Web site, www.irs.gov.
>> Make sure the car's title is transferred to the charity's name and keep a copy of the transfer.
>> Find out how much the charity will get from the sale of the car.
>> If the car is worth more than $5,000, get a written professional appraisal, required by the IRS.
>> Check out the charity with the Better Business Bureau.
Source: BBB Wise Giving Alliance, charities
The system in some ways is built on trust. The charity often has no contract with the company or dealer and usually doesn't get a copy of the sales invoice once the vehicle is sold. It instead receives a dealer form -- sometimes filled in by hand -- that indicates the purchase price and the charity's share.
The potential for abuse is heightened because donors rarely try to determine how much their cars are sold for -- and how much the charity actually got as a result.
Whatever shortcomings of the system, many non-profit organizations liken it to getting money for free. They incur virtually no expenses and have none of the hassles of dealing with car donations.
That's the reason the charity the Whitings decided to help in 1998 used an outside company. The couple spoke about their experience on the condition the charity not be named. They feared such a disclosure would hurt the organization's donations.
When the Whitings contacted the charity, they were referred to Lone Star Motosports, a dealership that likely sells more donated cars directly to consumers than any other in the state.
More than 100 local charities rely on Lone Star and its donation exchange affiliate, Kokua in Kind, to process and sell donated vehicles. The dealership gets a $135 fee for each sale -- less if the car doesn't fetch much -- and the charity gets the rest of the proceeds.
In the Whiting's case, Lone Star gave the couple an appraisal form indicating their van was in excellent condition. It had a new paint job and low mileage. The form also showed that Lone Star did a certified appraisal, valuing the van at $8,400.
When the Whitings subsequently learned the charity got only $400 from the sale, they contacted Lone Star. The Whitings were told the vehicle needed a lot of repairs, even though a pinhole leak in the power steering hose was the only thing wrong, E.K. Whiting said. "It was just about immaculate otherwise."
Lone Star owner Linne Holmberg said he couldn't recall the case -- the company sells about 100 to 150 donated cars a month -- and indicated that researching company records wouldn't be helpful.
He said the dealership always tries to get the best price it can, given the circumstances. He said he works at the behest of the charities and sometimes is asked to sell cars as quickly as possible, even though that may mean settling for less.
Many factors affect what donated cars fetch, and some sell for substantially less than appraised value, Holmberg said. He cautioned against taking an isolated case out of context. "We do the best we can ... If someone's not happy with us, don't use us."
The Hawaiian Humane Society is very happy with them. Eve Holt, a society spokeswoman, said the charity takes in thousands of dollars using Kokua in Kind. "They really make it easy for us. It's almost pure profit."
Last fiscal year, the Humane Society received about $15,000 from the sale of roughly 100 donated cars.
In the Kidney Foundation case, charity officials for liability reasons declined to name the dealer involved. But the Star-Bulletin determined Lone Star was the one.
Holmberg didn't acknowledge being the dealer but said discrepancies in what a buyer pays and what is reported to the charity probably can be explained because of repairs done to the vehicle. Repair costs are deducted from the sales price.
Earlier in the interview, however, he said the dealership rarely did repairs on donated cars, usually selling them "as is."
The initial document provided to the foundation after the sale showed no expenses for repairs.
Holmberg said Kidney Foundation officials are unhappy with him because they consider him a competitor for car donations.
The charity agreed to talk about its experiences in hopes of educating other charities and potential donors about possible pitfalls in how donations are handled.
Like others in the industry, they say donating cars is a valuable and noble practice, but people should do their homework before donating.
If a vendor does virtually all the processing for the donation, the vendor has too much control and the charity not enough, said Glen Hayashida, the Kidney Foundation's chief executive.
The foundation deals directly with donors and handles all the paperwork. Cars it receives are sold exclusively at a wholesale auction.
The foundation did not report to authorities the problem it uncovered in 1998 because of concerns about how enforcement action might affect donations in general. The charity simply severed ties with the dealer, as have a few other organizations.
No one can say for sure whether abuses involving car donations are a problem here.
But Anne Deschene of the Better Business Bureau of Hawaii believes it is, even though her organization has not received any consumer complaints.
"I'm shocked because I know stuff is happening," she said.
Star-Bulletin columnist Rob Perez writes on issues
and events affecting Hawaii. Fax 529-4750, or write to
Honolulu Star-Bulletin, 500 Ala Moana Blvd., No. 7-210,
Honolulu 96813. He can also be reached
by e-mail at: email@example.com.