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What Happens to Donated Cars? (priceonomics.com)
126 points by rohin on June 4, 2013 | hide | past | web | favorite | 56 comments

My car donation story:

In 1998 I donated a car to the American Lung Association. It was picked up from my driveway and I thought that was that.

Months later, I received a bill in the mail from the Chicago Police Department for impound fees. I do not remember the total but it was in the THOUSANDS. $4000 or so sounds about right in my cloudy recollection.

It had been dumped in an alley somewhere in downtown Chicago. The registration had never been transferred and I was still the legal owner.

I got it cleared up (fairly easily, thanks CPD - must be a common enough thing), but beware.

I've a similar story - I donated the car to KQED. Car gets picked up, get receipt, end of story right? A month later an insurance company calls me, says that my car was involved in a hit and run accident and I'm the registered owner still. It was a hassle but I was also able to clear it up, thankfully I kept the paperwork.

If I had to do it over again I would have sold it to a scrap yard and then donated the money. If you don't physically see the transfer of ownership at the DMV then you are open to these things happening.

From the DMV website: "When the owner of a California registered vehicle sells or transfers title or interest in the vehicle, the seller must complete a Notice of Transfer and Release of Liability (REG 138) and submit it to the department within five calendar days."


if you think filling a simple form is "hassle", you don't know what the South American / Spanish system is.

In my country, to sell a car, both the buyer and seller must have a notary ("Escribano", a special kind of clerk with a graduate degree). The notaries must check several state and country records (with assorted fees), checking for mortgages, impounds, even parking or speeding tickets (across all 19 states, which have separate records and systems). Then they write a special contract, which has special legal validity since it was witnessed by a notary. That contract is entered into the country registry of property.

After all that, you have to pay your notary a hefty sum (3% of the properties' value for houses, and several hundred dollars for cars, even clunkers), both buyer and seller sign the contract, the notary witnesses the act, buyer gives the money to the seller and you're done.

So, after a few weeks, if all goes well, you can proceed to give the keys to the buyer :P

Edit: it's worse, here's another version (which skips several steps, but adds some I'd forgotten)


"The usual order of events when buying a used car is...

1. Find the particular vehicle you want to buy either privately or from a dealer. The Sunday edition of El Pais offers a wide selection as does mercadolibre dot com dot uy and you already know about bottles. If you are used to northern second hand car prices, be prepared to pay an apparently eye-watering sum for an old car with an improbably high kilometer reading.

2. Find yourself an escribano/a to do the paperwork.

3. You and the vendor visit the escribano, present your IDs, sign the contract for sale, the purchaser pays the money, the vendor hands over a sheaf of papers and the escribano will provide the purchaser with the appropriate paperwork for the junta local to prepare a new "libretta" (plastic coated car registration card) with your name, your physical address and the car's details.

3. Before driving the car to the junta local, the purchaser will need to insure the car as insurance is now compulsory and the junta local will want to see a certificate of insurance.

4. On arrival at the junta local, the car will be physically inspected by a funcionario to ensure that the engine and chassis numbers on the vehicle match those on the paperwork. If the car lacks a current "patente" you will be charged for however many months are due for the remainder of the calendar year. If the vendor lived in the same departmento as the purchaser, the existing plates go with the vehicle. If you are re-registering the vehicle in a different departmento, you will be issued with new plates. It used to be the case that the cost of the patente varied from departmento to departmento. I have heard that patentes are to be standardised across the ROU from 2012.

5. The escribano will start a series of searches to ensure that there are no outstanding fines nor other charges due on the car in all 19 departmentos of the ROU. This process can take several months but you can continue to drive the car in the meantime. You cannot take the car out of the ROU until this paperwork has been completed as one of the documents will be a certificate from the Ministry of Culture confirming that the former owner(s) were not Uruguayo figures of cultural importance. :-) "

That's why my country has the dubious distinction of being "most bureaucratic country on earth" for several kinds of stuff (car transfers being one, and construction being another, being so bizarre as you having to have a permit and pay taxes to paint your own home)

I'm sure there are all sorts of reasons why not, but the above list of inefficiencies makes me start wondering about applying some code to one or more of the steps. How about starting to automate the 19 searches, and sell the service to the escribanos?

I visited Brazil in the early 90s and heard how everyone had to physically visit the bank and stand in a line to pay various utility bills. Mailing a check had not penetrated that economy at the time (too few people had checking accounts, whatever.) I wondered about a service that hired people to stand in line for them, but would have to overcome the problem of handling cash. Thankfully I have since heard that Brazil uses checks and other electronic payments methods now.

The thing is, most searches cannot be automated because the records are paper records, maintained by each local government.

There exist services (called "gestorías") where you hire someone to stand in line and do the paperwork for you where applicable.

Other records (like the record of ownership) have been computerized, but can ONLY be queried by someone with the notary ("Escribano") degree. I actually thought about tackling that one for data mining (it has the actual purchase prices for houses and cars and land), but there are personal data privacy issues too, and even if you get the degree, it can (and probably will) be revoked if you use it for stuff like that.

In Uruguay everyone had to stand in line to pay utilities, now we have services to pay them, and banks and credit cards offer internet payment tied to your bank account or credit card, there's even a startup that uses smartphones to scan the barcodes :) called Paganza http://www.paganza.com/ (that was started by some former coworkers of mine)

It's in the escribanos' interest for the process to be long and complicated - they're probably charging by the hour.

Escribanos feel EXTREMELY threatened by technology. When a digital signature bill passed, which gives legal equivalency to some forms of digital signatures to escribano witnessing (the only way to give legal legitimacy to some contracts in my country, absurd as it may seem), they protested strenuously.

The charity will almost certainly receive more money through this mechanism than donating the car -- the intake businesses keep the lion's share of the money. My dad donated a car a while back -- the charity got like $150.

I donated a car to KPBS a while back. As part of the process they informed me clearly of the California rules of submitting a transfer of registration form within 5 days of the transfer:


IIRC, the guy towing the car even gave me a copy of that form. At the time I thought it was just more DMV bullshit paperwork, but filling out that form was a lot easier than clearing up some of the messes described in these stories would have been, so I guess it is actually useful.

Aye. Never let a vehicle be taken until the relevant transfer of ownership documents have been filled out in full and submitted. Submit the forms yourself, don't be tempted by an offer of the person/organisation you are handing the vehicle to dealing with the paper work as a convenience to you. If that is inconvenient for the person you are selling/donating to, then tough for them.

If your country's system is such that the buyer has responsibilities that are beyond your control (i.e. they have to submit the final forms, you can't), make sure you take good copies of everything you fill in and sign so if there are questions of ownership later you can prove you are acting in good faith (otherwise you risk being seen as trying to hide behind grey parts of the process to avoid tax, registration fees, or whatever you are required to do/pay in your current legal jurisdiction).

I have donated cars in New Jersey. Before the tow truck picks it up, you are instructed to remove the license plates from it. After pick up, you need to do two things: call your insurance company and remove the car from the policy then go to a DMV office and surrender the plates, which effectively terminates the car registration and ends any legal liability on your part.

Always copy/scan the filled out title before you give it to them, at least then there's some proof you transferred ownership.

I'm a little confused by the conclusion that "It is up to donors to do their research and donate in a way that will maximize the support they provide for charities." I gave a 10 year old Honda Civic with 198,000 miles on it to KQED. A truck showed up and took it away and I got a tax deduction. The car ran okay but didn't pass the California smog test and the chances of me selling it to a third party were small. I got what I wanted, an old car taken away for very little effort. I chose KQED because I'm a big fan of public radio. It was up to KQED to maximise the amount of money they got for it.

Point is that taxpayers are subsidizing your gain in disposing a car that isn't worth the book value, as well as the process of transporting and selling the car, and KQED might not get much money at all.

The problem isn’t that the car isn’t worth the book value. As the article stated, you can only deduct the price that the car gets at auction. The problem is that you deduct the gross auction price rather than the net amount that the charity can use. It comes back to the question of how much overhead a charity should have (see also Dan Pallotta’s talks that have been making the rounds).

What I don’t understand is what prevents a for-profit service that provides hauling, and returns to you the auction proceeds minus hauling fees and zero value insurance. Then car owners would have a real choice between pocketing ~50% of the car value and giving it to charity and getting only ~30% as a tax deduction, and they would be less likely to give the car to an unsavory profiteer.

Assuming your car has to be towed away (for whatever reason), financially, your best bet is to probably sell it to a junk yard. They will tow it for you, and throw you a couple hundred bucks.

My impression was that towing is more about convenience for the donor rather than operability of the car. This way, people donating cars don't have to coordinate dropping off the vehicle at a location and then getting home.

An interesting read but, boy, was that a needlessly long article!

TLDR; Some car donation schemes are run as for-profit entities but we can't tell how many because the Governement don't keep accurate records. If you donate, do some research before you do.

Maybe someone should do a Priceonomics article on the length, and usefulness, of articles vs, cost of time spent reading it.

I like to use Charity Navigator before donating to new charities.

They have a quick guide on donating cars:


Interesting read, I wasn't aware of the tax situation around donated cars.

Probably not related, but I'm also interested in the advertising for people that buy "junk cars". I'm saving the SMS junk car spam I get, planning on plotting the advertised price against a timeline for fun.

I am from Brazil, I dunno how it works in the US, but here, "junk cars" are for illegally bringing back to streets illegal cars for some reason or another.

Here the system is very simple, yet efficient and lucrative: You steal a car (for example a BMW, here in Brazil those get 2, even 3 times the US price).

Then, you buy a junked BMW, maybe even a totalled one, with roughly the same model.

Then you "mashup" the two, mixing the two cars into one, making sure the serial numbers on the chassis and engine end being the least illegal ones.

Then you bribe some officials... And you can resell your "refurbished" and "used" BMW for the US market price (that here is 1/3 of the normal price), you can even claim to clueless buyers that you bought the car in the US and is reselling here (this is illegal here, reason why the car is so expensive, you need a special permit to buy a car outside Brazil), to make them think the car is legal.

Of course, since you made the car using two cheaply obtained cars, this is very lucrative.

Some people don't even steal cars, if the model is popular enough (And still lucrative) you can just keep buying junked cars until you have enough parts to build a sell-able one.

I think a variation of that happens in every country in the world.

I've heard it called all kinds of names like "re-birthing".

If you remove the "stealing" part, re-birthing is about creating value and recycling.

People are spending their time and skills in creating good cars (ie that the market is willing to buy) from unusable cars.

They take say 5 bad ones and make 1 good one. That's like a 20% recycling - and the bad one can be sold for parts.

Why exactly is it a bad thing???

EDIT: Yes, I would be comfortable driving myself and my family in such a car. When I buy a car, I take it to a professional I chose (not one that the seller chose) for a 2nd inspection - one that I pay for myself. If the market can provide me such a car and a professional to evaluate the car, yes, I am quite comfortable with that.

Would you prefer "brand new" cars that have unknown defaults that can be fatal? (but that you will learn about only after N people died) These new cars passed all the government tests after all, so do you trust them more? A used car has an history - a professional know the defaults of that particular brand and model, and knows what to look for.

Maybe it's my own biais (aversion to uncertainty?), but everything fails. I prefer things (cars, computers, prescription drugs, etc.) which precise failures are known in advance, thanks to say 100k people having use that same thing for 5 years.

Unfortunately, that exclude most "new" things, since the models are constantly "upgraded".

You're right, it's not always a bad thing.

That being said, cars are often "written off" or somehow declared illegal to ever be driven on the road again once they have a certain level or kind of damage. This is done to keep everyone safer by removing vehicles that don't meet an acceptable minimum standard.

If I chop up 5 cars declared illegal for road use, and make one car from them, is it safe enough? How is that tested? Usually, people that are "re-birthing" cars are not interested in telling the new buyer the history, so nobody will even know the particular car has a questionable safety history.

Would you be happy driving your young family in a car that I welded together from other cars?

Cars which are "written off" by insurance companies are also known as a "total loss" or "totaled" and the title for that car will be branded as such. These things only happen in the case of insurance claims after accidents and such.

Those cars are, as you say illegal to operate as-is, but there are many non-running cars which would be (if certain repairs were made) perfectly legal to drive. Buying up several of these cars and assembling the best pieces is neither illegal or nefarious. Even buying a few "totaled" cars as donors for certain parts is perfectly fine as well.

I work for an insurance company. Many of the cars we declare as "totaled" are nothing of the sort, only they need a few very expensive accessories, or the original equipment is too expensive - but aftermarket or used parts, which we cannot use (the company policy and contract is only replacing with original parts on newer cars), would make the car perfectly fit for driving again. The main culprits are airbags and electronics.

> there are many non-running cars which would be (if certain repairs were made) perfectly legal to drive. Buying up several of these cars and assembling the best pieces is neither illegal or nefarious. Even buying a few "totaled" cars as donors for certain parts is perfectly fine as well.

Right, but that has absolutely nothing to do with what the original comment mentioned about pulling together parts from illegal cars to make one legal car.

Let's be perfectly honest, even if I put together 5 1991 Subaru Loyales to make one good one, I won't be making money because it's still only worth $2k.

On the other hand, if I can "get" a few 2009+ luxury cars and turn them into a good car, I stand to make a lot of money. I think you'll find you can't legally and cheaply get 2009+ luxury cars.

Assuming there's no fraud, there are four parties who gain from this transaction: (1) the person getting rid of the car without doing any work (2) the person buying the car (3) the person or company whose job it is to do the work (4) the charity.

The proportion gained by the charity might be relatively low but everyone gained something, so it's unclear that it's inefficient.

"Assuming there's no fraud" makes two very nasty assumptions: That there is no fraud, and that fraud is the only way this can go sour for the donor.

If both of these were the case, I imagine there would be no reason at all for articles like this or most of the comments here. As it is, there is fraud and there are other issues at work making this riskier than it should be (from a prospective donor's point of view).

I made the mistake of donating a car I didn't want and was too lazy to sell, never again.

I was told all the way "oh, you'll get KBB value for your car!" and the reality was never that, I would only get the auction value. I got less than half of what the car was actually worth...

> I got less than half of what the car was actually worth...

First, the car is worth whatever someone will pay for it and not a cent more. Also, as of January 2005 you cannot use the KBB value or "fair market value" of your car for your deduction and rather MUST use the auction price for the car.

Here is the KBB page about that change: http://mediaroom.kbb.com/index.php?s=43&item=130

> First, the car is worth whatever someone will pay for it

This is a nice little definition except that it doesn't mean much in the real world. OP could have gotten a better price if he invested some time and sold the car himself. He could have gotten a price closer to his own perceived value of it's worth.

Actually, it means exactly that in the "real world." All you're stating is that he could spend time in order to make someone else's perceived value of it closer to his own.

It doesn't matter what you paid or what the blue book value is. You will only ever get what the person willing to pay the most for it that you're able to sell it to will pay. I didn't like it or agree with it the first time I heard it (from someone who ended up not buying a car I was trying to sell) but, years and many experiences later, I understand that it's true.

> if he invested some time

If he invested some time then he would not just be selling the car as-is where-is. He would be selling the product of the car + his effort which may actually be a net loss depending on how much time he spent and how much of a better price he received.

If I had spent 2 minutes posting the photos and a description of the car, responded to 20 emails @ 1 minute each, then spent maybe 2-3 10 minute visits with people to sell the car it would've been a net win even if I did that every day for a week.

> First, the car is worth whatever someone will pay for it and not a cent more.

Right, if I'd sold it via Craigslist I could've gotten double the money I would've gotten at auction, you seem to have missed my point :)

So not only would I have ended up with more cash in my pocket, I would've ended up with more cash in my pocket to pay taxes.

This is why donating a car is dumb.

interesting article. and after finishing it, the radio spots on my local npr affiliate pushing the car-donation angle make me a little bit sad.

from the title, I was really hoping they would talk about what happens to the cars _after_ auction...

The most likely thing is that the car is disassembled and sold as spare parts, which usually brings in much more money than selling the car itself, especially if the body is old and beat-up. For example, you can probably sell the car's computer or ignition control unit or ABS controller for hundreds of dollars. If someone has a car that runs well and is worth thousands of dollars, he probably won't just give it away for a tax deduction; he'll try to sell it or trade it in. (This is also what happens to lots of stolen cars: they get taken to a "chop shop".)

If the car is of an age old enough to be scrapped or donated, to buy an ECU or other Electronics for a similar car of a similar age probably means the replacement bits are worth more than the car is, which would make the whole exercise uneconomical, further increasing the number of scrap cars and thus, number of replacement ECUs, thereby increasing supply and reducing price.

I agree.. how do scrap yards manage to make money by breaking up cars? Surely there are so many different materials, contamination must be an issue and modern cars don't even have that much metal. How do car-breakers make their money? That's the Pricenomics article I want to read.

Maybe selling the used parts to us South Americans :)

Cars here (Uruguay) are so expensive, we try to maintain them forever

An old article (from 1969!!!) illustrates the point:


"The official position is that car owning is a sumptuary sin." It still is, and so new cars are taxed about 100%. Take any U.S. car, triple its price, and that's the cost in Uruguay. Old cars (2005 and older) can be five to ten times more expensive than in the U.S. (my 2002 small Renault Twingo sells for U$ 9.000)

> what happens to the cars _after_ auction

The same thing that happens to any used car that is sold in general. There is nothing related to charity once the car is on the used car lot and for sale. Just some of the sale price are kicked back to the charity.

I'm a religious Giants fan, and it makes me think sadly about Duane Kuiper's voice on the "Kars for Kids" ads on the radio, with the kids songs. I didn't realize it was for religious education.

It pays for tuition for private school for people who otherwise could only afford public school.

The private school has both religious and secular education.

It also provides family support for children with troubled backgrounds, or other issues.

To be clear, when I meant a religious fan, I was joking (in that the SF Giants are my primarily religious belief). Didn't have the additional context - thank you.

The barriers involved in selling used cars are so high that people have established a billion dollar industry by simply taking the cars from people for free and promising them money later through tax receipts.

Just let that sink in.

Dammit, I was hoping this was an article about how those old minibuses find their way from Northern and Western Europe all the way to West Africa.

Why does the article refer to this as a tax loophole?

Isn't this a tax deduction working as intended? It's giving a tax break to people who support charities.

> Why does the article refer to this as a tax loophole?

A "charitable donation" that mostly goes directly to lining the pockets of a for-profit entity shouldn't be tax deductible, but in this case it is deductible -- hence, a tax loophole.

In other words, charities getting into the side business of large-scale car sales to generate revenue bends the law in a direction its authors never intended [1]. In particular, the charities' for-profit partners in this side business end up with most of the revenue from an immediate liquidation of these tax-deductible donations -- and that outcome seems to go against the fundamental concept of tax-deductible charitable giving. This practice is apparently legal and lightly regulated, according to the article -- it's within the letter of the law. But it goes against the spirit of the law, which is that only donations to charities should be tax deductible.

[1] This is according to the article's idea of the law's authors' intent: That charities would use the donated cars for their own operations, or give them to the poor people they serve. Is this picture of the law's authors' intentions correct? That's another discussion entirely.

The intention is that donations to charity don't have income tax applied to them. When you donate an object like a car it's not really the same - most likely you bought it, got your money's worth from it and now want to be rid of it, so it's not really like you're donating something you paid income tax on.

You paid income tax on the money used to pay for the car. By donating the residual value you are recovering part of the income tax that you already paid.

Yes, but for many people I suspect the value to them is much lower than the auction price. If you were following standard accounting like a business you would probably have fully depreciated the car before the time came to auction it.

And people complain about government waste...

Recycle cars. End of Story.

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