AMENDED MEMORANDUM

ERIC L. FRANK, Bankruptcy Judge.

I. INTRODUCTION

This case presents both legal and factual issues regarding the valuation of an automobile pursuant to 11 U.S.C. § 506(a)(1) and (2) in a chapter 13 case.

Debtor Richard B. Henry ("Mr. Henry") and Jenna L. Henry (collectively, "the Debtors") commenced this chapter 13 bankruptcy case on August 2, 2010. On September 8, 2010, World Omni Financial Corp. ("World Omni") filed a proof of claim asserting a secured claim in the amount of $19,419.93. The property securing the claim is a 2006 Toyota Tundra pickup ("the Vehicle") that is owned jointly by the Debtors. (See Proof of Claim No. 1).

On May 16, 2011, the Debtors filed a Motion for Valuation of Security ("the Motion") (Doc. # 42) asserting that the value of the collateral securing World Omni's claim does not exceed $10,000.00. Pursuant to 11 U.S.C. § 506(a), the Debtors requested that the court reduce World Omni's secured claim to $10,000.00 by bifurcating it into secured and unsecured components. In its June 1, 2011 Response to the Motion (Doc. # 46), World Omni asserted that the value of the Vehicle is $17,075.00.

An evidentiary hearing commenced on June 14, 2011 and was completed on July 12, 2011. Mr. Henry testified for the Debtors and Paul Runiewicz ("Mr. Runiewicz") testified as an expert witness on behalf of World Omni. Among the documents admitted into evidence were several photographs of the Vehicle, Mr. Runiewicz's written report (which included various used car market reports), and several other appraisals (admitted into evidence by agreement and without supporting testimony).

For purposes of 11 U.S.C. § 506(a), I determine the replacement value of the Vehicle to be $15,045.00. Consequently, I will enter an order allowing World Omni's claim as secured in the amount of $15,045.00 and unsecured in the amount of $4,374.93.

II. GENERAL LEGAL FRAMEWORK

Section 506(a) of the Bankruptcy Code provides, in pertinent part:

Section 506(a)(2) is a recent addition to the Code—it was added in 2005 by § 327 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005), effective October 17, 2005 ("BAPCPA"). When § 506(a)(2) was added to the Code, the provision formerly codified as § 506(a) was not altered, but rather was recodified as § 506(a)(1).

In In re Fareed, 262 B.R. 761 (Bankr. N.D.Ill.2001), the court provided a cogent summary of the function of the provision formerly codified as § 506(a), and now codified as § 506(a)(1), as it pertains to chapter 13 cases:

262 B.R. at 768 (emphasis added).

Consistent with the architecture of the Code described in Fareed, it is apparent that part of the Debtors' chapter 13 rehabilitation strategy is to obtain a determination that World Omni's claim is partially secured and partially unsecured so that they may invoke the chapter 13 plan process to modify the claim under 11 U.S.C. § 1322(b)(2), provide for payment of only the allowed secured claim under 11 U.S.C. § 1325(a)(5) and relegate the unsecured portion of the claim to a pro rata distribution along with other unsecured creditors.

The first step in the Debtors' strategy requires the valuation of the Vehicle (the collateral for their debt) under 11 U.S.C. § 506(a). See also Fed. R. Bankr.P. 3012. The debtor bears the burden of proof on the valuation issue under § 506(a). See, e.g., In re Erb, 2011 WL 2600647, at *2 (Bankr.M.D.Pa. June 29, 2011); In re Weichey, 405 B.R. 158, 164 (Bankr.W.D.Pa.2009); In re Finnegan, 358 B.R. 644, 649 (Bankr.M.D.Pa.2006).

III. FINDINGS OF FACT

Based on the evidentiary record, I make the following findings of fact.

1. The Debtors purchased the Vehicle new from Fort Myers Toyota, in Fort Myers, Florida, on November 16, 2006, for a purchase price of $33,682.01, subject to a $4,000.00 rebate.

2. The Debtors financed the Vehicle's entire purchase price. (See Proof of Claim No. 1).1

3. World Omni provided the financing in the transaction. (Id.).

4. At the time of the transaction, the Debtors were residing in Florida, where Mr. Henry was employed as a construction manager.

5. The Debtors acquired the Vehicle so that Mr. Henry could use it at job sites in connection with his employment in the construction industry.

6. Some time thereafter, and prior to the commencement of their bankruptcy case, the Debtors moved to Pennsylvania.

7. Over the past two years, the Debtor has been employed in the automotive industry.

8. Currently, he is employed by CK Colors, a company that specializes in body work on automobiles. His job requires him to repair dents and scratches on automobiles. Prior to his current job, he was employed by a Toyota dealership, where he performed similar work.

9. The Vehicle is a pickup truck with a 4.7-liter, 8-cylinder engine. It has rear-wheel, two-wheel drive, which makes it a popular model in the southern United States, but less practical and valuable in the northeastern United States, due to the frequent snowy and icy driving conditions.2

10. As of July 1, 2011, the Vehicle's odometer showed 83,454 miles.

11. The engine is in good condition.3

12. With the exception of some paint damage on right side of the front bumper, the body of the Vehicle has no discernible scratches or other defects.4

13. The cost of repairing the damage to the front bumper is $563.95.5

14. The replacement value of the Vehicle as of the date of the filing of the Debtors' bankruptcy petition was $15,045.00.

IV. DISCUSSION

A.

As will be discussed below, the parties presented opposing evidence regarding the value of the Vehicle. Initially, before describing and evaluating the evidence, I must consider the appropriate valuation methodology to be employed.

Prior to BAPCPA and the addition of § 506(a)(2), § 506(a) did not direct the courts to employ any specific methodology in determining the value of property. The Supreme Court addressed the issue of the proper valuation methodology in Associates Commercial Corp. v. Rash, 520 U.S. 953, 965, 117 S.Ct. 1879, 138 L.Ed.2d 148 (1997). In Rash, the Court held that in a reorganization case in which the debtor proposes to retain and use the property being valued under § 506(a) (and, in particular, treat the creditor's claim in the chapter 13 plan under 11 U.S.C. § 1325(a)(5)(B)), the valuation must be based on the "replacement value" of the secured property. 520 U.S. at 960, 965, 117 S.Ct. 1879. The Court defined replacement value as "the price a willing buyer in the debtor's trade, business, or situation would pay to obtain like property from a willing seller." Id. at 960, 117 S.Ct. 1879.

As a judge in this district observed in 2003, "[t]he Supreme Court provided little more guidance than this, noting that the standard it enunciated `leaves to bankruptcy courts, as triers of fact, identification of the best way of ascertaining replacement value on the basis of the evidence presented.'" In re King, 2003 WL 22110779, at *4 (Bankr.E.D.Pa. Sept. 2, 2003) (per Sigmund, J.) (quoting Rash, 520 U.S. at 965 n. 6, 117 S.Ct. 1879). What little guidance exists is found in footnote 6 of the Rash opinion, where the Court stated that replacement value should exclude certain items that a debtor would not receive when retaining an automobile, such as warranties, inventory storage, and reconditioning. 520 U.S. at 965 n. 6, 117 S.Ct. 1879.6

After Rash, courts have employed a multitude of methods in determining replacement value under § 506(a). See, e.g., In re Pearsall, 441 B.R. 267, 270-71 (Bankr.N.D.Ohio 2010) (collecting cases and methodologies); In re Gonch, 435 B.R. 857, 864 (Bankr.N.D.N.Y.2010) (same).

To further complicate matters, Rash and many of the reported decisions employing various valuation methodologies for determining replacement value were decided prior to the 2005 BAPCPA amendment to § 506(a), which added § 506(a)(2). Thus, I must also consider the effect, if any, of the BAPCPA amendment on collateral valuation under § 506(a). Fortunately, while the BAPCPA amendment to § 506(a) adds some complexity to the analysis, its effect is fairly straightforward.

Bankruptcy courts appear to be unanimous in the view that the first sentence of § 506(a)(2) codifies Rash in individual chapter 7 and chapter 13 cases by mandating the use of replacement value as the valuation methodology. See, e.g., In re Scott, 437 B.R. 168, 172-73 (Bankr.D.N.J. 2010); Finnegan, 358 B.R. at 648. The second sentence of § 506(a)(2) establishes a statutory definition of replacement value for "property acquired for personal, family, or household purposes," as "the price a retail merchant would charge" for property of the age and condition of the secured property.

Thus, in its present form, as it relates to individual chapter 7 and chapter 13 cases, the plain language of § 506(a)(2) directs the court to ascertain replacement value in two different ways, depending upon whether the secured property was purchased for consumer or non-consumer (presumably business) purposes.

If the secured property was purchased for some non-consumer purpose, replacement value continues to be determined from the perspective of the debtor under the first sentence of § 506(a), as the Supreme Court directed in Rash in 1997: "the price a willing buyer in the debtor's trade, business, or situation would pay to obtain like property from a willing seller."7 Rash, 520 U.S. at 960, 117 S.Ct. 1879.

On the other hand, if the property was acquired for consumer purposes, the second sentence mandates that replacement value be determined from the perspective of a retail merchant, not that of the debtor.8

B.

In this case, I have found that the Debtor acquired the Vehicle for use in connection with his employment. See Finding of Fact No. 5. Consequently, like the court in Finnegan, 358 B.R. at 648, I conclude that this contested matter is governed by the first sentence of § 506(a), instead of the second sentence.

Therefore, I will employ the valuation methodology mandated by Rash, rather than any modification of that methodology mandated by BAPCPA for property purchased for consumer purposes. Further, consistent with the first sentence of § 506(a)(2), I will determine the value of the Vehicle as of the filing date of the Debtors' bankruptcy petition. See n.7, supra.

Before proceeding to that task, however, I will briefly digress to examine certain issues that bankruptcy courts have addressed as they have attempted to implement the directives given by the Supreme Court in Rash, both before and after the enactment of BAPCPA. As elaborated below, courts have employed a multitude of approaches, sometimes driven by the nature of the evidence developed in the particular case, and sometimes driven by an interest in promoting efficiency and predictability.

C.

In post-Rash cases under § 506(a) involving the determination of the replacement value of motor vehicles, courts have repeatedly grappled with two issues. These issues remain relevant under the first sentence of § 506(a)(2):

Particularly because cases involving the valuation of motor vehicles frequently are presented to the court without expert valuation testimony, many bankruptcy courts have relied on commercial reports such as the National Automobile Dealers Association Guide ("the NADA Guide") or the Kelley Blue Book ("the KBB") as a starting point in the valuation process. Compare Scott, 437 B.R. at 173-74 (following In re Morales, 387 B.R. 36, 37 (Bankr. C.D.Cal.2008) and using NADA Guide as starting point), with In re Penny, 2011 WL 204888, at *2 (Bankr.N.D.Cal. Jan.21, 2011) (employing KBB as starting point), and In re Martinez, 409 B.R. 35, 40 (Bankr.S.D.N.Y.2009) (same).9

The far more controversial issue is whether the court should begin with the retail, private party, trade-in, or wholesale values listed in the commercial reports being considered.

In some cases, courts have used retail value and adjusted downward. See, e.g., Scott, 437 B.R. at 174; In re Cook, 415 B.R. 529, 535 (Bankr.D.Kan.2009). In other cases, courts have started with private party value or wholesale value. See, e.g., Gonch, 435 B.R. at 865-66. Under both of these approaches, the adjustments have been based on considerations such as the condition of the secured property or other relevant factors.

Some courts have taken an average of the reported retail value and the private party or wholesale value. See In re Getz, 242 B.R. 916, 919-20 (6th Cir. BAP 2000); In re Nice, 355 B.R. 554, 556 (Bankr. N.D.W.Va.2006); In re Richards, 243 B.R. 15, 19 (Bankr.N.D.Ohio 1999); see also L.B.R. 3012-1(b) (Bankr. D. Vt.); King, 2003 WL 22110779, at *5 n. 18 (collecting cases).

Other courts have modified the retail value stated in the chosen commercial report by some fixed percentage and used that value as the starting point in the valuation process. See Penny, 2011 WL 204888, at *3; In re Cheatham, 2007 WL 2428046, at *3 (Bankr.W.D.Mo. June 19, 2007); In re Renzelman, 227 B.R. 740, 741-42 (Bankr.W.D.Mo.1998); In re Mayland, 2006 WL 1476927, at *1 (Bankr. M.D.N.C. May 26, 2006); see also Local Rule 3015-2(g) (Bankr. E.D. Mo.) (incorporating court's Procedures Manual, which provides that, absent evidence to the contrary, vehicles will be valued under § 506(a) at 97% of the NADA retail value at the time of filing the petition).10

In this district, there are two reported cases discussing some of these issues.

In In re Winston, 236 B.R. 167 (Bankr. E.D.Pa.1999), Judge Scholl surveyed the case law on the subject, much as I have done above, and ultimately concluded:

Id. at 171 (emphasis added).

In King, Judge Sigmund went a bit further, reasoning:

2003 WL 22110779, at *5 (footnote and citation omitted) (emphasis added).

D.

In this case, because the parties presented specific appraisal evidence and did not rely solely on commercial reports, it is unnecessary for me to decide whether it is essential or appropriate to develop some type of mechanical valuation procedure making use of both the retail and/or other valuations set forth in the reports and whether such a procedure is consistent with Rash. In this respect, I will follow Winston and decide this case without the "establishment of a set formula for vehicle valuation ... based upon `book' value." 236 B.R. at 171.

At the same time, however, the parties disagree whether "replacement value" under Rash and the first sentence of § 506(a)(2) is ultimately measured by retail value or some other, lower value, such as wholesale or private party value. As will be discussed below, there is evidence in the record regarding both the retail and wholesale value for the Vehicle. Therefore, I must consider how evidence regarding retail and wholesale value should be treated in a determination of replacement value under § 506(a)(2).

After reviewing the case law on the subject, I join the King court in holding that, generally, replacement value under Rash (and, following BAPCPA, under the first sentence of § 506(a)(2)) is something less than the retail value. In reaching this conclusion, I am persuaded by the following passage in In re Glueck, 223 B.R. 514 (Bankr.S.D.Ohio 1998), a case cited with approval in King:

Id. at 519 (emphasis added).

To resolve the present contested matter, my holding can be limited to the principle that replacement value under the first sentence of 11 U.S.C. § 506(a)(2) is something less than the retail value. Because the parties in this contested matter offered appraisal evidence (the relative strength of which is discussed in the next section of this Memorandum), I can determine the value of the Vehicle by applying the principle that replacement value is less than retail value and assessing the competing appraisal evidence presented.

E.

There was a marked contrast in the nature and quality of the competing appraisal evidence offered by the parties. The Debtors' evidence was especially problematic, and ultimately unpersuasive, in comparison to World Omni's evidence. At the same time, although World Omni's evidence was based on a better foundation, it too, was flawed.

The Debtors introduced two written appraisals into evidence, neither of which was accompanied by supporting testimony of the appraiser. One of the appraisals, written on a sales order form containing the letterhead of P.G. Auto Center and signed illegibly by a salesman (first name "Robert"), valued the Vehicle for private sale or trade-in as $8,200.00. (See Ex. D-1). I know nothing regarding the experience or expertise of the author and the appraisal did not explain how its author arrived at the stated valuation.

The Debtors' second appraisal was written by Anthony Carino on the letterhead of Liberty Toyota Scion. It states an "appraisal amount" of $10,000.00. (Ex. D-2). Again, this appraisal provides no information with regard to the experience or expertise of the author and the appraisal did not explain how its author arrived at the stated valuation. The second appraisal is perhaps even less helpful than the first as it is silent as to whether it is referring to retail, wholesale, trade-in or private party value.

Due to the lack of any explanation regarding the basis for these two appraisals, I find them to be of little value, especially in comparison to the evidence World Omni offered.11

World Omni's expert, Mr. Runiewicz, is extremely well-qualified, having spent over 30 years buying and selling used cars in various capacities. His report reflects that he considered a variety of sources in formulating his opinion that the retail value of the Vehicle, as of July 2, 2011 (when he inspected the Vehicle), was $17,995.00.12

Mr. Runiewicz visually inspected the Vehicle and, in his testimony, described his observations regarding its condition (which he deemed excellent). On the internet, he found what he considered to be relatively comparable vehicles being offered for sale by dealers, one in Georgia and the other in Pennsylvania, with asking prices of $17,990.00 and $15,695.00, respectively. He referenced the KBB, which reported a retail value of $18,920.00 for a 2006 Toyota Tundra in excellent condition (and he considered the Vehicle to be in excellent condition because he minimized the body damage that Mr. Henry claimed exists). He referenced the NADA Guide, which stated a clean retail value of $17,600.00. Additionally, he considered market data from Manheim.com ("Manheim"), a website maintained by a very large, well-known used car wholesale auctioneer. Mr. Runiewicz explained that Manheim compiles data from actual sale prices at wholesale auctions of automobiles and estimates the expected retail price thereafter. In particular, he relied on Manheim data for the period of July 2, 2011 through July 9, 2011, which suggested that, for a 2006 Toyota Tundra in above average condition, the expected auction price would be $13,950.00 and the estimated retail price would be $17,600.00. Based on all of this data, Mr. Runiewicz formulated his opinion that the Vehicle's retail value is $17,995.00.

In general, I credit Mr. Runiewicz's valuation as he is experienced in the field and he employed what appeared to be a well-accepted valuation methodology. I found the valuation evidence he offered far superior to the evidence offered by the Debtors. I do not, however, accept his testimony unconditionally. For example, I am uncertain that he is correct in placing a value on the Vehicle that is higher than the $17,600.00 clean retail value stated in the NADA Guide.13

More importantly, I cannot adopt his ultimate conclusion on the value of the Vehicle, because it was based on an incorrect valuation standard. Mr. Runiewicz opined as to the retail value of the Vehicle as of the date of the hearing, and that is not the factual issue in this contested matter. The issue is the replacement value as of the date of the Debtors' bankruptcy petition.

That said, the data that Mr. Runiewicz presented in support of his opinion permits me to adjust Mr. Runiewicz's valuation to harmonize it with 11 U.S.C. § 506(a)(2). The information presented by Mr. Runiewicz that is most helpful is the Manheim data suggesting that the expected auction price would be $13,950.00 and the estimated retail price would be $17,600.00.14 Thus, the "swing" is $3,650.00.

In the particular circumstances of this case, I find it appropriate to determine the value of the Vehicle by adjusting its likely retail price downward by a significant margin. Mr. Henry may or may not have access to wholesale automobile auctions, but in light of his connection to the automotive industry, I consider it extremely likely that, in replacing the Vehicle, he would access some alternative source other than a retail used car dealership. See Glueck, 223 B.R. at 519. Therefore, in this particular case, I determine that the Manheim estimated retail price should be reduced by 70% of the difference between the estimated retail price and the wholesale price (i.e., by 70% of the $3,650.00 "swing").15 This results in an adjustment (reduction) of the $17,600.00 retail value by $2,555.00 and a replacement value of $15,045.00.

Before concluding my valuation analysis, I must account for two other factors: (1) the $563.95 in repairs needed to fully restore the body of the Vehicle to excellent condition, and (2) the date of valuation. These factors cut in opposite ways. The necessary repairs reduce the replacement value of the Vehicle. The valuation of the Vehicle as of July 2, 2011, rather than August 2, 2010, would require an upward adjustment in the replacement value due to depreciation of the Vehicle's value in that eleven month period.16

There is nothing in the record that would assist in quantifying the Vehicle's depreciation in value from August 2010 to July 2011. In the absence of such evidence, and based on my role as fact-finder in "connecting the dots" to fill in gaps in the evidence, I find that the depreciation approximates the $563.95 of the repair costs. Therefore, no further adjustment to the previous value determination is necessary, and the replacement value of the Vehicle remains $15,045.00.

V.

For the reasons set forth above, and because I have determined that the replacement value of the Vehicle is $15,045.00, I will: (1) grant in part and deny in part the Motion and (2) enter an order allowing World Omni's claim as a secured claim in the amount of $15,045.00 and unsecured claim in the amount of $4,374.93.

An order consistent with this Memorandum will be entered.

ORDER

AND NOW, upon consideration of the Motion for Valuation of Security filed by the Debtors (Doc. #42) ("the Motion"), and the Response thereto filed by World Omni Financial Corp. ("World Omni"), and after a hearing, and for the reasons set forth in the accompanying Memorandum, it is hereby ORDERED and DETERMINED that:

1. The Motion is GRANTED IN PART AND DENIED IN PART.

2. The replacement value under 11 U.S.C. § 506(a) of the 2006 Toyota Tundra, which is the subject of the Motion, is $15,045.00.

3. World Omni's proof of claim (Claim No. 1) is ALLOWED as a secured claim in the amount of $15,045.00 and as a general unsecured claim in the amount of $4,374.93.

4. The Clerk shall amend the Claims Register to reflect the terms of Paragraph 3 above.