Can you use the car before you buy it? No. So the value you plan to get will be in the future. The market value of a car is set buy how many people want to own one versus how many want to buy one and how much they are willing to pay. The buyer may want to use it to get to work for a few years, to haul loads for pay, or to flip for a profit. All those things are future values. You and Pch seem to think that the people that write the blue book make those numbers up!

At any rate, different assets appreciate or depreciate whether used or not used or a combination of those things. I wouldn’t sell you a car if the only value you would get was negative unless you acted like a total jerk. I know sales people who would though.

Let’s say that all the cabbies are losing money. It’s going to be hard to sell a cab. However, the value of that cab TODAY – the LIQUIDATION VALUE – will reflect the value that cab will bring to the potential buyers in the future.

Not one piece of evidence or expert opinion was submitted to support a valuation of over $2B. Nada. Nothing. None. That is significant.

Now, to the subject of “future value.” Future value is a theoretical construct only. It is subjective and in my experience mostly used by salespeople to justify pricing that cannot be justified in any other way.

The best analogy, and one that I should have thought of earlier, is selling a used car. The price that one is willing to pay for a used car is what you think the value is today. You could say that the value should be lower since it is very likely that the car will depreciate. Will the seller accept that? Probably not. The seller will say that the value of the car is what it is worth on the market today; what the value might be tomorrow is irrelevant. If you’re selling a car, Landcrusher, are you going to discount your price based on what the buyer thinks the future value is going to be? I think not.

Just to take it a bit further, let’s say that I’m buying Landcrusher’s car to use to deliver pizzas. Since I will be making money through the use of the car, Landcrusher might argue that the car is worth more than the value today. Do I buy that? Not a chance.

The idea is the same whether it is a used car or a used car manufacturer. The “future value,” whether higher or lower, is simply not of consequence when establishing the purchase price.

Where future value is of consequence is when deciding to make the purchase in the first place. Then, the “future value” is called ROI, or Return On Investment. Calculating ROI is a black art in itself, though the value proposition for Fiat is fairly clear. It just may not work.

I am not trying to rewrite anything, that would be you trying to rewrite the thread above this comment.

I have only enlightened everyone about how you gave the law meaning that it doesn’t have to support an argument. Without being able to dismiss future value, your argument fails. Sorry. You can define all the terms you want. There is nothing in the bankruptcy code which says that when determining present value, one should not consider market value. Market value is greatly influenced by future value, so future value is thus always considered. Period.

You keep going on with your own unique extra-legal theories of what Chapter 7 should be, even though it isn’t. It’s kinda up to you to support it, since you’re the one trying to rewrite what it is.

You obviously have this theory of value, so support it. I know what you’re trying to say, but it just doesn’t match the bankruptcy code.

All I have been doing was pointing out that something you said was untrue because it undermined the greater point. The non-tarps are being treated unfairly. Saying that the 2B number is fair because someone unidentified to us says it was fair is just ridiculous. Saying that the future value of the assets has no bearing is misleading. Yes, present value is what is at issue. However, future value is important to consider in order to derive present value. Especially when the pool of potential buyers is so small, and the players are trying to cram the process through the courts in order to avoid reasonable objections.

I’ll tell you what: If you have good reason to believe that the assets being sold are worth more than what was offered, then prove it. Otherwise, enough already.

When you buy an iPhone, you buy a whole contract of phone and service. You wouldn’t buy the phone if the future value of that purchase were not more than the cost. That is basic economics.

In the case of the iPhone, you will use it to make money, or consume the value. EIther way, it will take place in the future, after you make the deal.

In the case of the assets of Chrysler, some will appreciate, others will get used up, some will lose value with time whether used or not. It doesn’t matter. It’s a business asset, so any buyer is buying it to make money in the future. Future value. Otherwise, they won’t buy at all. As you say, the market value is presently low because there are not many people thinking that making cars is a good idea. Those folks too, are calculating future value.

It’s a just a truism, you stepped in it, buddy.

I really like this one – “That’s all you, and the bankruptcy trustee, would need to know.”

Yes, the rest of us shouldn’t worry our little heads how the “market value” was set. Is that because it was set without actually trying to ascertain market value? Because as I have shown, market value will reflect future value.

Not really. An iPhone that costs $600 today might be worth a $1 in ten years. Doesn’t matter.

The current market price of the equipment at this moment is low. Not a whole lot of buyers. That’s all you, and the bankruptcy trustee, would need to know.

What the stuff might be worth in 5 to 10 years is important because it influences the value of what it’s worth now. You either do understand my point, or you don’t.

That’s how the world works. Fiat is willing to pay 2B, because they think that in the future they will can make more than 2B with the assets. They may be willing to pay more. The job of the court is to ensure that one side did not conspire to take from the other.

I really love how you jump from the issue of what is right, back to what is reality whenever it suits your case. It’s very telling.

Allow me to summarize.

“The assets will be worth a lot one day, 2B is too low.”
- “Irrelevant.”
“No, it’s important, that means someone will invest in them”
- “That’s not what’s important, it only matters what they are worth today, and that’s the number that was declared.”
“But the worth today is a function of worth tomorrow.”
-”that’s not what the term means”
“I am not talking about the term, I am talking the value.”
- “you are making stuff up”
“No, that’s the way things work”
-”You can wish it so, but that’s your own little world.”
“It can’t work any other way”
- “Sure, but it doesn’t matter, you can’t PROVE it’s worth more, it’s too late, the whole thing is now in our world and we have the power to decide, Muhahahaha.”

I understand your point, but in this context, it isn’t relevant.

The issue of Chapter 7 is the value now, or at least soon. If the New Chrysler is paying a fair price for the Bad Chrysler’s assets, then the bondholders have nothing to complain about in a court of law.

It’s as simple as that. Since establishing a higher value than the $2 billion is going to be damned near impossible, given the lack of activity, there’s nothing much to talk about. What the stuff might be worth five or ten years from now is not an issue in bankruptcy court.

The only hope that the bondholders had was if they could make this discussion of value take up so much time that the government threw in more cash to shut them up. When that ability to stall became less likely, the bondholders gave up. No surprise there.

The market price is set by supply and demand. Supply is controlled by sellers, demand by buyers. Fiat is a buyer. You say they will buy at 2 billion. Why would they buy at 2 billion but not 3? (assuming they would not).

You know I took grad courses in econ, too.

And in this environment, that price is low. Everybody expects higher yields than they did before. The price of a used-up car brand has fallen, just as the price of a machine has fallen.

If car brands have so much value, we would have seen the existing brands on the market commanding high prices after reasonable market times. That clearly isn’t happening.

Saturn? Saab? Hummer? Volvo? There’s no queue to buy these things. You have to practically pay people to take them. The value is token value at best, a reflection of an economic decline, coupled with the relatively incestuousness nature of the car industry which renders few operators capable of actually buying these firms. It’s not exactly among the most liquid of industries, particularly now.

You would have a point if I were considering Ch7 items for purchase for scrap metal. Weight x Price = Return. Very simple.

I MIGHT very well be a buyer, in the case of Chrysler, who intends to grab all or most of the operational asset components of “Jeep” for example in Ch7 (or Ch11). The price I’m prepared to pay is the price I perceive the risk/return is for the future.

I think this is Landcrusher’s point, and something that does not appear to be being tested in Court.

It is only if you accept Landcrusher’s efforts to rewrite US bankruptcy law to suit his vision for it.

The long-run future value of the business just isn’t relevant in a Chapter 7 liquidation. I didn’t decide this, this is just what the law does. The trustee sells the assets — now — at what is supposed to be the current market price. If there is a business, they can continue to operate it temporarily if operating it facilitates the sale of the assets, but in a 7, the end game is to sell everything aside from whatever assets may be protected, and to pay the creditors with the sales proceeds.

That’s it. Whether the buyer of those assets ends up hitting a home run or whether he tanks is irrelevant. The trustee’s job is to get the market price that is available in today’s market. This goes back to the problem that the bondholders had in this case — that number was doomed to be low, given the economic environment. Pretty easy to see why they’d just give up.

I am telling you a fact.

No, you really haven’t. You’ve attempted to rewrite the laws of economics because the current ones aren’t working for you.

If an asset has a market value of X, a buyer isn’t going to pay 2X just because he could turn a profit with it after paying 2X. He’ll pay X because that’s the going rate.

If the market price is too high to allow for him to make a profit, then his response will be to avoid the purchase entirely. That doesn’t change the market value, but only the decision made to purchase or not purchase.

If the liquidation value of the acquired Bad Chrysler assets is $2 billion, Fiat isn’t going to pay $3 billion or $4 billion or even $2.1 billion, because it doesn’t have to pay more than $2 billion. Period. If the market price is $2 billion, Fiat will buy them from whoever will sell them for $2 billion or less. If Chrysler charges too much, no sale.

Again, we all need to understand the distinction between how we wish things were, and how they actually are.

Many of the current debt holders would appear to have been denied the ability to see the operational numbers.

Secured creditors typically have access to financial statements. I would assume that they had them, unless proven otherwise. Their loan documents would have likely had covenants that required the borrower to provide them.

For those of you all still listening

Yes, we’re here. Thanks you for the discussion.

The creditors have every right to argue both that the liquidation value was set to low, and that the theoretical enterprise value should influence that number.

This is the singular question is it not?

Cerberus denied operational detail because of their ownership structure, and we have to guess the PTFOA got the numbers and decided Ch11 rather than Ch7. So too Fiat after their “diligence”.

That would suggest in the sans debt New Chrysler, there is a nugget of an operating business (Chrysler do after-all sell some cars, ocassionally), and that therefore there is a future value being transferred.

Many of the current debt holders would appear to have been denied the ability to see the operational numbers. Maybe a Chrysler, sans debt, operating as Dodge/Jeep has potential to be a profitable niche car maker……

Who knows, I don’t think we have the information.

(For what it’s worth, for the industry as a whole, I believe capacity has to be removed. A Chrysler Ch7 would be a contributor to that process. Having said that, I still understand the need to keep the burning airliner aloft to crash out to sea however).

1. It’s the definition you choose, so it’s your definition, if it were the only definition you would have a point, but it’s not, so you don’t. Both words have definitions, and your little group of people don’t get to tell the rest of the language speakers they have to conform. Forget it. The man on the street gets to use it how he sees fit without conforming to your master plan.

2. The guy at Subway buys bread at the price he can make a profit with. FUTURE VALUE. You plan to eat it. FUTURE VALUE. It’s all future value. No matter what the guy selling it calls his price, the folks buying are willing to pay their own FUTURE VALUE. No body gives a shit what the bakery’s accountant calls the number. Supply and Demand set values, not accountants. So when the accountants and lawyers who have put themselves into a bunch of jobs with these ridiculous schemes decide to call it purple haze it won’t matter either. The number matters, and the number is an estimate of what the asset will sell for. What something will sell for is always affected by the buyers’ willingness to pay. You can’t sell bread for $100 a loaf because no one sees a FUTURE VALUE of bread for $100 a loaf. If your so called experts appraise the bread at .10 a loaf, they are just being idiots because the buyers perceive the FUTURE VALUE of the bread at more than that. You can’t set prices in a vacuum, the buyers must help set the price, and they fix their highest price based on FUTURE VALUE.

(For those of you all still listening, this is why accountants and lawyers generally do not like sales people, because sales people live in the real world where these things matter. It’s a dirty grimy place which doesn’t conform to their perceptions. OTOH, sales people don’t like accountants and lawyers because they generally exist to add friction to the market place and even stop business that makes perfect rational sense for perfectly irrational reasons. Oh, and the accountants practice cheating sales people on their commissions, and the lawyers have made it so that they get away with it).

3. There is no present in sales. You cannot fix a value on the present because it goes by faster than you can agree on a price. A price is ALWAYS for use in the future. Otherwise, it’s not a price, it’s a settlement because you stole it.

4. I am not mixing things up. I am telling you a fact. You aren’t listening. I am not redefining your terms, I am telling you economic fact. Your terms are correct, but they are just labels. The underlying values are all based on FUTURE VALUE. It’s just that liquidation value is not based on future value of the enterprise, it’s based on the discounted future value tof other enterprises willing to buy the assets. You see?

5. The creditors have every right to argue both that the liquidation value was set to low, and that the theoretical enterprise value should influence that number. First, the whole process stinks all to hell since the executive branch of the US got their stinking paws all over it (both admins). Second, They may want to make a claim on Newco based on their seniority. It’s not fair for one group of creditors to set all the values, and tell another group what they should get. That is what the court is supposed to do, no?

6. Their caving does not settle the right and wrong of the matter, it settles their perceptions of what their best likely outcome will be. Choosing to hand over your wallet to a gunman doesn’t make you wrong to protest the robbery.

It’s not my definition, it’s the definition. I didn’t make it up.

Now, WHY WILL ANYONE PAY ANYTHING?

Answer: THEIR PERCEPTION OF FUTURE VALUE!

That’s wrong. The guy at Subway doesn’t pay a higher price for his bread than I do, even though he plans on using the bread to turn a profit while I just plan on eating it. Both of us will use our buying power to buy the bread that we want for as little as we can pay for it.

The ability to make a profit selling cars might create competition to buy equipment; the competition to buy it could make equipment more expensive in the future when that happens. But we’re talking here about the present, so that possible value in the future of equipment is meaningless.

In any case, your mixing things up. Today’s liquidation value is just that — the price that you get if you break it up and sell it, today. That’s what a Chapter 7 is going to yield to the creditors.

The creditors have no business arguing for tomorrow’s enterprise value while talking about liquidation in the near term. They’re just confusing the matter, trying to find justifications to inflate the price, because they know that the breakup value sucks and the theoretical enterprise value should be higher.

In any case, I think that you can see that they punted. It should be obvious why they did that. If the government wasn’t going to cave, the stall tactics were only going to get expensive for the holdouts, which would have defeated the purpose of fighting it out in the first place.

You wrote this: “Whether Fiat ultimately makes nothing or earns ten gazillion bazillion dollars from its efforts has nothing to do with current liquidation value, any more than the liquidation value of my car has anything to do with whether I use it to get to my multi-million job on Wall Street or if I pilot it to McDonald’s to my burger flipping position.”

Your definition of liquidation value is based on what people will pay at time of sale, correct? What you can get for it, not what you might be able to make off it if you kept it.

Good.

Now, WHY WILL ANYONE PAY ANYTHING?

Answer: THEIR PERCEPTION OF FUTURE VALUE!

If you want to disagree with that, don’t argue anything else, and if you don’t disagree with that, then don’t ignore it either. Fiat is only willing to pay based on it’s own perception of future value.

One persons liquidation value is another’s future use value.

You can’t totally divorce the two concepts. The non-tarps are indeed disadvantaged because who else is going to step into this maelstrom and offer to buy the assets when they will be wasting their time doing so?

Nobody is saying that the liquidation value is zero, we’re just saying that it is very, very low. Sure the land the factory is on is worth something, but the issue here is that the non-TARP bondholders thought it was worth a lot more than they were getting. They just couldn’t come up with any evidence to support their claims.

You don’t get it, and you keep trying to redefine terms that have already been defined for both of us.

The issue of enterprise value is the value of the entire business, the theory being that the sum is greater than the parts (in other words, the value of the “goodwill.”) The liquidation value is the price of the bits if you sell them.

In an 11, the creditors are entitled at minimum to get what they would get in a 7, which means liquidation value. That’s why we’re talking about it, because this is the threshold value that has to be hurdled for the 11 to possibly be legitimate.

Liquidation value of used car factories is low right now. Not a whole lot of buyers for used equipment and bad brands when sales suck and there is no credit.

If you want to dispute that, show me some comps that disprove that. I ask you to do that because that is what the bondholders would have had to do, and the very reason that the bondholders just punted — they had nothing to use to defend their argument.

An appraisal could have come back with an even lower value. There is just nothing there. Not exactly the ideal time to sell the used assets of a broken company.

You must be getting confused by a technical definition which isn’t reflecting the real meaning. Definitions can’t always reflect the whole story.

If nothing else, the real estate has value, and that value is nothing without future use considerations.

Also, you cannot liquidate something for even a penny unless someone else values it. That value is always based on that persons perception of the value in the future. Otherwise, your items have negative value because you must pay to have those items hauled off, or accept that they detract from the value of the real estate.

In reality, no one ever pays for anything without consideration of future value. It’s a truism, believe it.

It is correct when you are discussing **liquidation** value. Liquidation value is the price that one can obtain by selling the asset, not the value realized by the party using the asset.

Right now, I suspect that used auto factories are going cheap, cheap. The bondholders threw in the towel, when they realized that at this point that they would just be burning through legal fees for nothing.

The idea that no one is willing to speculate on the value enough to pay more than scrap and dirt value is a stretch in my opinion. So, the liquidation value is what the liquidation value is, but that value is going to reflect future earnings potential of the facilities and equipment.

Yes, but not simple minded like people who believe that the SDNY and Peg Boy Gonzalez are paladins of justice seeking only the best interests of creditors and the American Way.

“Really. Obama isn’t even from Chicago.”

You must be one of the he is a Muslim from Kenya people.

“The court has put the onus on the holdouts to produce an alternative that matches their story, and we all know that they can’t.”

The burden should be on the proponent of the sale. The opponents have been able conduct discovery, nor to engage experts to investigate.

IT SHINES AND IT STINKS