Sunday, April 17, 2011

What’s my car worth? Automotive Valuation for Bankruptcy Purposes

The Bankruptcy Court has provided some guidance for valuing a car for the purpose of a Bankruptcy Petition:

“[A]djusting the Kelley Blue Book or N.A.D.A. Guide retail value for a like vehicle by a reasonable amount in light of any additional evidence presented regarding the condition of the vehicle and any other relevant factors” is an appropriate means of reaching retail value. In re Morales, 387 B.R. at 45.

The court agrees that the Kelley Blue Book is an appropriate starting point for a valuation analysis. The values it supplies are based on actual transactions occurring in relevant regional markets. They are admissible under Federal Rule of Evidence 803(17). The Kelley Blue Book is objective, serves the interests of standardization and predictability, and is cost-effective, which benefits the parties.

But the Kelley Blue Book retail values cannot be the final word. Retail value under 11 U.S.C. § 506(a)(2) and the Kelley Blue Book’s suggested retail value have slightly different meanings. Suggested retail value under the Kelley Blue Book “assumes that the vehicle has been fully reconditioned,” and only “represents dealers’ asking prices and... the starting point for negotiation” between a consumer and a dealer. Kelley Blue Book Auto Market Report 4 (May 2010)

By contrast, 11 U.S.C. § 506(a)(2) requires the retail value to mean “the price a retail merchant would charge for property of that kind considering the age and condition of the property.”

The Kelley Blue Book value therefore must be adjusted for two things. First, it must reflect the actual condition of the car if that condition is not optimal. Second, it must reflect the fact that the Kelley Blue Book value is the asking price for a retail sale, not the final price, as it is reasonable to believe that dealers do not sell vehicles frequently at the asking price."
(See In re Penny)

As a practice tip, consult both NADA and Kelley Blue Book private party value as a starting point, and then consider the actual condition to make appropriate adjustments.

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