Case Study in Social
A New Earned Income Venture
Description of Agency
Casa Esperanza is a “home
away from home for cancer patients and their families” who receive treatment
at the University of New Mexico Cancer Center in
In 2005 Casa Esperanza participated in an initial training program
in social enterprise taught by Social Enterprise Ventures Principal
Initially, the team of Board and Staff hoped to realize $100,000 in annual net income to offset operating costs as well as to underwrite the cost of a new program.
Casa Esperanza’s first income idea centered around an ambitious real estate venture to build a center to provide comprehensive services for cancer patients and their families. The team eagerly began market research and feasibility into the scope, costs, and market needs for such a venture, but learned that such undertakings would not provide the income necessary, as to do so would require charging client families dearly for the hoped-for additional services and programs.
Returning to their inventory of assets, the Casa Esperanza team looked more closely at a car donation program, run for the agency by a for profit company in another state. Although the program netted on average $ 35,000 each year, the agency was not able to establish relationships with donors, received about 10 cents per dollar value of the donated vehicle and questioned whether it was feasible to manage this program themselves.
In the preliminary research phase, the team discovered:
· That the for-profit car program we had contracted with had never complied with the contract – although it would not have done us any good if they had;
· That 86% of the cars donated through that program were scrapped for $45;
· That 80% of the donors were from the Metropolitan Albuquerque area;
· That the way the for-profit program calculated figures, we could never receive more than ten cents on the dollar;
· And that there was a local car dealer (red flag should have been waving madly!) who wanted to help us!
Thus began Pilot #1 in the Fall of 2006, in which we diverted about 13 cars to the helpful dealer in a profit-sharing agreement. With rosy glasses on all parties, he said he would repair the best of them to maximize the price we received, which in fact he tried to do. The hitch is that we never saw a single dollar of the money and the dealer went broke! We were able to retrieve only the last four unsold vehicles, and it took quite a while to obtain copies of the dealer’s paperwork.
We learned a great deal, though:
· Don’t do business with a dealer if you haven’t seen his dealer’s license and—if you are going to sell cars on commission—his insurance policy;
· Don’t try to fix a 15 to 20-year-old car unless you know exactly what it needs. Behind one problem lies another – which the donor no doubt knew when he or she gave it away.
We did acquire a single asset of major value: a tow-truck driver who can tow, repair, and evaluate vehicles.
That led to Pilot #2, working with a reputable new-car dealership, where the head of used car sales permitted scouts coming through to buy our donated vehicles for cash on the barrelhead. Our cars were much too old for him to sell on his lot. That was much more successful – he brought us over $10,000 in a matter of three weeks. However, there were some questions about the prices he got for some of the cars—they seemed too low—but he often sold them in lots of 4 or 5 to--guess who?--primarily local used car dealers scouting his trade-ins for things to buy they knew he couldn’t put on his own lot. Another lesson learned.
However, our wonderful tow driver played it three ways. He took cars to the auto recyclers that were clearly scrap. He took cars to our dealer helper that just might be marketable. He also siphoned a few cars off of the 61 he picked up, repaired them, stuck for sale signs on them, and brought us much more substantial prices. His concern was that we should be able to get more from the dealer for many of the vehicles than we were. So, the hitch with Pilot #2 was that our helper had no personal stake in what cars went for and very little time to spare haggling. Pilot #2 was scratched when our “helper” was promoted to take over new car sales for the dealership.
Then we visited an auction and saw that vehicle donations could be reduced to two options if we want to maximize our revenue, even from scrap:
· Take them to the auctioneer and make dealers bid competitively; and/or
· Sell them to used car dealers ourselves and make sure we know what they are worth.
So, although we produced only a modest income from these initial pilots, we learned a great deal.
Venture Results To Date
In February 2006, Casa Esperanza launched the Give Hope a Ride
Vehicle Donation program in earnest, pouring funds into advertising (mainly
radio), leasing a car lot, obtaining a NM Dealer’s license, attending
auctioneering school in
The program has outgrown its present lot, leading us to search for a new, larger lot complete with offices, to purchase. We are researching the possibility of expanding our program to include taking cars for other local charities, providing all services through sale of the vehicle, with a percentage of the net going to Casa Esperanza. Although we would have to pay NM State gross receipts taxes on these sales (as these vehicles are not a direct donation to Casa Esperanza), we would still profit, as would the many charities who now turn car donations away due to the many loops required to process such donations.
We are also exploring the feasibility of starting our own scrap business, as there is only one major player in town - one major player that sets the local price for scrap metal, which has fallen from a high of $600-$700 per car when we started, to a low of $250 per car presently. Owning our own scrap business would also allow us to salvage good tires and other viable parts for re-sale. As long as we sell only items that came to Casa Esperanza as a donation, we are spared from the state’s gross receipts tax.
So, the social enterprise experiment continues for Casa Esperanza. In these especially uncertain “donor” times, the car program is keeping our programs afloat and intact to benefit our client families.
Eileen Casey Cook, Executive Director and President
Casa Esperanza, New Mexico