There are advantages and disadvantages to the various methods available for disposing of business vehicles. Selling, trading, or scrapping or donating the vehicle are among the various methods you can consider when you are ready to get rid of a vehicle.
If you have already considered whether you should keep or dispose of a vehicle used in your business and have decided that it's time to let it go, what's the next step? You will want to look at the pros and cons of the various methods available for disposing of the vehicle.
The basic options available to you for disposing of a vehicle are:
- wholesaling or scrapping
- donating the vehicle to a charity
Pros and cons of selling a vehicle
Selling a business vehicle you wish to dispose of has numerous advantages and disadvantages.
The advantages of selling a vehicle on your own include:
- Better price. Selling a vehicle on your own will probably enable you to get a higher price for it than with any other disposal method. The reason? You get some of the extra profit that a dealer would make from selling your vehicle if you had traded it in instead. This does not necessarily mean that you can get exactly the same price for your vehicle that the dealer would get. Dealers typically offer warranties and financing options to their customers that you are probably not in a position to offer.
- No additional purchase required. When you sell your vehicle you get cash that you can use for any purpose. If you find that you no longer need a vehicle in your business and want to put money to work elsewhere, this is probably your best option. It is probably also your best option if you are getting out of your business. On the other hand, if you do need a replacement vehicle, you won't be limited to choosing one from the dealer where you traded in your old vehicle.
- Specialty vehicles. Your local car dealership may be reluctant to accept a septic pumping truck, a delivery truck with the driver's seat on the "wrong" side of the vehicle, or other specialty vehicles. If a dealer won't take your vehicle in trade, or offers to pay only a scrap value price for it, you may have to sell the vehicle on your own.
- Experience and contacts. If your business involves selling, you may be comfortable with selling a vehicle on your own. Moreover, you may gain a few new customers or contacts from people who come to look at your vehicle and, in the process, find out about your business.
The disadvantages of disposing of a vehicle through a sale
While selling a vehicle is probably the most common method of disposing of one, there are several disadvantages in selling your own vehicle:
- Ill will. If you sell an unreliable vehicle to someone, you could create much ill will for your business in the process. Even if you are an excellent desktop publisher, you could be known around town as an unscrupulous and unreliable business person because of a lemon you sold. If, therefore, a vehicle is truly unreliable, consider trading or wholesaling it rather than selling it yourself. If you must sell such a vehicle yourself, at least try to be honest about its condition. You may also want to "distance" the vehicle from your business as much as possible. Say "I'm ________ and I'll be happy to show you this vehicle," rather than "I'm __________ from xyz corporation. This is one of our company vehicles, and we'd like to sell it."
- Delays. You cannot collect any money until you sell your vehicle. This may take considerable time. Trading your old vehicle in is a much faster option if you cannot wait to get a replacement vehicle.
- Legal obligations. Depending on the laws of your state, you may impose legal obligations on yourself by selling a vehicle. For example, you may be responsible for guaranteeing that the vehicle passes certain emissions and safety tests. In some states, you must warranty the engine and power train for a certain period of time. Finally, some states allow you to sell a vehicle "as is." This means you are not liable for any repairs on the vehicle once you have sold it. Check with your state motor vehicle licensing office about warranty requirements on vehicle sales. You should consider establishing a contingency fund to cover the costs of any repairs for which you could be held responsible. A good rule of thumb is to reserve about 25 percent of the estimated cost of these repairs out of sale proceeds. If you don't hear from the buyer of your vehicle within the time period specified by the laws in your state, you can put the money back into your business. But if there's a problem, you won't have to suddenly come up with the entire amount for repairs.
- Transaction costs. Selling a vehicle takes time and some money. You will probably have to show your vehicle to several potential buyers before you find a real buyer. And you may need to purchase some classified advertisements to get the word out on your vehicle.
- Strange people, deadbeats, and con artists. A number of people may call on you to take your vehicle for a "test drive." In reality, some of them will probably be looking for nothing more than a "joyride." Others (the "deadbeats") may have honest intentions about buying your car and fully paying for it, but these intentions may not be supported by their checking account balances. Worse still, if you're not careful, you may fall victim to con artists, who are known to sometimes use such scams as paying for vehicles from private parties by way of stolen or counterfeit cashiers or certified checks. (If you take one of these worthless pieces of paper, don't count on being able to recover your vehicle; most likely it will have been dissected for parts in a "chop shop" before you discover the fraud.)
So how do you avoid losing out to the deadbeats and con artists who may show up at your door? First and foremost, unless you know your buyer well, never accept a personal check in payment. Rather, you should only accept cash, or — with the appropriate cautions noted below — cashiers or certified checks. If you don't feel comfortable with receiving a large amount of cash and having to transport it to your bank, arrange to meet the buyer at the buyer's bank and receive the cash there. Then make arrangements with the bank to transfer the money into your account, or do it yourself if there is an on-site automatic teller machine. Don't just meet the buyer at your bank and deposit the check in your account. The fact that your bank deposits or cashes the check doesn't relieve you of liability to make good on the check if it proves worthless. If you decide to accept payment by way of a cashiers or certified check, check with the bank upon which it is drawn to ask if it is good.
If you've decided that selling your vehicle is the way to go, make sure you get the best price for your vehicle.
Trading in, scrapping or donating vehicles
There are both pros and cons associated with trading in, scrapping or donating business vehicles in order to dispose of them.
Trading in a vehicle
There are several advantages of trading in a vehicle:
- Quick turnover. You get rid of (and get credit for) your vehicle quickly, allowing you to get a replacement vehicle that you need fast.
- Fewer responsibilities. You incur fewer legal obligations by trading a vehicle than by selling one on your own, although you may still have some responsibilities depending on the laws in your state.
- No ill will. There is little chance of harming your company's reputation if you trade to a dealer. Selling an unreliable vehicle to someone could destroy your reputation as a credible business person.
- Lower transaction costs. It usually takes less time to trade in a vehicle than to sell one, although you may have to try a few places to get the best offer for your trade. You're also much less likely to encounter problems like being paid with a worthless check. And strange people won't be calling on you at strange hours asking for a test drive.
- Possible lower sales/use tax on purchase. In some states, when you trade in your vehicle to a dealer and purchase another car as part of a single transaction, the tax on the new vehicle is computed as the price of the new vehicle minus the trade-in value of your old vehicle.
Your state has a 8 percent sales tax applicable to retail sales of vehicles. You trade your old small pickup truck, valued at $10,000, on a new $25,000 pickup. The sales tax due will be $1,200 [($25,000 - $10,000) x .08)], rather than $2,000 [$25,000 x .08], which would be due on the purchase (without trade-in) of the same truck.
However, there are disadvantages of trading in a vehicle, which include:
- Price. You probably won't get as high a price for the vehicle as you would by selling it yourself.
- No cash. Trading is limited to cases where you're getting a replacement vehicle. Also keep in mind that your selection of a replacement vehicle will probably be limited to the inventory of models offered where you trade your vehicle.
- Negotiation. You'll probably be negotiating against someone who understands cars, and the car business, better than you do.
- Availability. Trading may not be a viable option if your vehicle is too old, has too much mileage, or is a unique vehicle.
If you've decided that trading in your vehicle is the method of disposal for you, be sure to get the best trade-in amount for your vehicle.
Scrapping a vehicle
Basically, there are two advantages of selling your vehicle for its scrap value:
- Some cash. You will probably get more money for your vehicle by scrapping it than by donating to a charity. However, you may want to evaluate the tax consequences of disposing of a vehicle to be sure this is the case.
- Simplicity. There are few strings attached to, or liabilities created by, scrapping a vehicle; you also do not create any ill will toward your business as you could by selling an unreliable vehicle to a private party. Moreover, the fact that your vehicle is very old, worn, or a specialty vehicle (such as a septic tank pumping truck) that nobody wants probably won't be a problem.
On the other hand, two disadvantages of scrapping a vehicle are:
- Availability. In these days of environmental consciousness it can be difficult to find a scrap yard.
- Costs. In some places, you may actually have pay for the privilege of scrapping a used vehicle because of environmental concerns.
Donating a vehicle to charity
The advantages of donating your vehicle to a charity, such as a trade school that teaches auto repair, include:
- Good will. One donation to a charity can go a long way toward making your company popular among other people who support the charity.
- Tax advantages. You may be eligible for a charitable deduction.
- Less liability. There are few liabilities or strings attached to this method even if you donate a vehicle that is in poor condition.
- Availability. The age and type of vehicle probably will not matter much to the charity to whom you donate the vehicle.
Some disadvantages of vehicle donations are:
- Money. You don't get any, besides a possible tax break.
- Time. Donating a vehicle probably takes more time than scrapping one because you must find a charity that is willing to take the vehicle and make arrangements for pickup at the charity's convenience.
- Solicitation. You may set your business up for future solicitations from the charity to whom you donate your vehicle.