By September 13, 2011 14 Comments Read More →

American Chopper: Why Foreclosure Had To Happen

Like millions of property owners, Orange County Choppers has felt the sting of foreclosure and could be moving to smaller quarters. It’s a “business decision” says the senior Paul Teutel, speaking on the downsizing episode of the American Chopper TV series.

You could see this coming for much of the past year.

In November 2010, the local Times Herald-Record newspaper reported that the company had failed to make mortgage payments of more than $100,000 due by July 1st, 2010.

“The Choppers,” said the paper, “stopped making mortgage payments in order to put pressure on the lender to modify the terms of the loans, according to Choppers’ lawyer Richard Mahon. Mahon said that when the headquarters was built in 2007, it was valued at about $12 million. Because of the economic downturn, the building is now worth between $7 million and $8 million, he estimated.” (See: Orange County Choppers’ HQ faces foreclosure, Nov. 18, 2010)

According to public records, the property consists of a two-story building with 98,172 square feet that was erected on 3.3 acres of land in 2008. For 2011 the property is valued at $11,248,600

If the idea was to force the lender to accept a lower mortgage rate or give up principal because the value of the property declined then foreclosure of the new building was inevitable. Here’s why:

First, financing on the property was held by GE Commercial Finance Business Property Corp. according to the Times Herald-Record. The company is enormous with 2008 revenues of $26.7 billion. The $12.5 million provided to Orange County Choppers means the motorcycle builder has no leverage because it can’t materially impact the lender by withholding payments. Alternatively, by foreclosing GE can force OCC out of the building. This is no contest.

Second, GE is a lender, not a partner or co-owner. Think about it this way: If the value of the building increased would Orange County Choppers then voluntarily agree to pay additional money to GE?

Third, a savvy point is made by Digits over at Clutch & Chrome:

“Could anyone who bought an Orange County Chopper and is still paying for it with a loan go back and ask the motorcycle building company for a discount, or at the very least help with the monthly payments? Would there be some recourse for the different dealerships around the country reselling Orange County Choppers over their costs compared to a difference in selling prices during these tough economic times?”

Fourth, how much business has been lost to a new custom bike builder that recently set up shop nearby: Paul Jr. Designs? Is the market for theme bikes big enough to support two local companies — or to support two local companies well? Could the companies prosper without TV exposure?

Paul Senior and Paul Junior have now settled their lawsuit though personal relations between father and son are clearly strained. The good news, at least, is that all OCC employees will keep their jobs even if the physical plant is downsized — that’s enormously important at a time when unemployment is high and rightsizing and outsourcing are too common. Meanwhile, PJD is growing and that’s a great success story to watch.

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14 Comments on "American Chopper: Why Foreclosure Had To Happen"

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  1. not yours says:

    Ya well if they bend to one it sets the standard to bow to all. Thats typically not what someone with 12 billion in personal interests wants.

  2. J. Hughes says:

    Discovery Channel treat Asia viewers like nobodies. This season we had three or four OCC reruns, one showing the dead dog resurrected for the fourth time.

    I used to watch, with some mainly non-English speaking friends, essentially to pick up modern steel fabricating tips.

    I am now the proud investor in a water jet cutter, a laser cutter and we (partners) have a rip-roaring business.

    All this is due to OCC. Mind you about 80% was of little interest but the other 20% was really interesting.

    Another company bought the water pressure machine that is used to take out the wrinkles from bending tubes. The use of plasma welding equipment was learned from OCC and now we are benefiting from that, too.

    People say Junior was lazy. H wasn’t, he had to get inspiration, he was a typical artist. I, personally, design small mechanical parts and printed circuit boards and I quite accept, and understand, his apparently tardy work habits. Junior had real talent and Vinny had the ability to take a vapour designs and translate them in to viable drawings.

    Rick’s talents were unbelievable, taking a piece of flat steel and turning it into a work of art. Fascinating.

    As for Discovery, I am dropping the channel, it now has so many gun programs that are unsuited for children, and fishing for sharks, crabs, swordfish and ugly looking fresh water fish, coupled with endless repeats (how many times can the same show be called ‘Premier?).

    The editing is clever, making a totally boring, repetitive subject like crabbing, last so long shows real production talent.

    So Discovery, with no OCC – you can count me disconnected.

  3. JSRIII says:

    Are we really sure that the fight between Sr. and Jr. was real? Is it possible that the show was dropping in the ratings and needed something to liven things up. What about all of the logging shows, everybody is fighting with everybody else. Good lord, how many weeks would you watch a bunch of guys cutting down trees if it weren’t for all of the melodrama. Same with bike building. How many theme bikes can you watch go together? But father and son yelling and screaming and throwing chairs, kinda reminds me of professional wrestling….

  4. Tim Horton says:

    Like father like son. Hot tempers and big egos. Before they were TV stars they were family. Of anyone that may have lost, it would be the supportive fans of the show itself. Lies and more lies fed to the viewers and there seems still to be selfish positions taken by all parties including the TV Network.

    It was a kind of family show in the beginning. Each family member having distinct personalities but it is clear even love has a price with these guys. They have built some extraordinary bikes but a lot of shops can do that. In reality, their employees seem to be the talent. I do not see Sr. or Jr. doing any real fabrication work. It appears someone else makes the frames, does the paint work and so on and so on.

    Are the significant values of the first show and now the mix of two bike building shops, with a father and son’s inability to act as adults, based on the importance of Sr. and Juniors’ management skills? If you really think about it, the custom quality and designs of their products are either from employees or outside manufacturers that most likely provide products for Bike Builders, Nationally or Internationally. So what would be the majority of opinions from this shows fans? The truth is I can only speak for myself and offer my opinion. My opinion is the show is worthless, as well as several other family and business related and interaction shows, when it comes to providing positive family relationship values. I believe love, understanding and tolerance should be a part of the governing force for a family business.

    I wonder if recent customers of either builder would have purchased any product if it was known that there would be no free TV advertisement naming the two shop’s customers or businesses. I think not. Clearly, again this is my own opinion, TV networks are having to dig in the dumpsters to find any type of reality show that might sell, even if only short term. Storage wars, TV shows pertaining to violent and dangerous vehicle repossessions, pawn shops that buy and sell gazillion dollar pieces and the list keeps growing.

    I think it is sad, unless it is simply terrible acting, that families would expose themselves, their personal short comings, desire for power, money and fame over a thing called love. I wonder if any of these people really understand their lack of sensitivity is showing, do you? Oh well, to each their own and at the end of the day, some how or another, we will all need to answer for our own actions. Or maybe we can all convince ourselves that our actions have no impact on anyone but ourselves.

  5. richsbca says:

    GE financial: 139 billion bail out; nuf said! I think they should modify the loan and be as kind as the tax payer was to them!

  6. Peter G. Miller says:

    American Chopper is fair game because it’s well within the stream of public comment and Paul Sr. is the author of The Ride of a Lifetime, a business advice book.

  7. A P Graham says:

    Commenting on others reported success or failure relies on 20 20 hindsight.
    Who would be happy if their business decisions were subjected to the same degree of public scrutiny?

  8. A P Graham says:

    Court action requires full disclosure from both parties, and an honourable litigant will have nothing to fear.

  9. James T. says:

    I think it would be funny if PJD made a deal with GE to take over the old OCC plant. To have Junior replace the OCC logo with his would kill the old man!

  10. Dr. S A Visotsky says:

    Point taken. Are you familiar with a PF39CH? That is an Order for Injunction. When people sign a NDA, they are bound to abide by it. This includes any and all forms of electronic communication, to include clever inuendo, according to the High Court:

    “The Defendant must not make public statements or carry out written threats sent to Claimant, seeking to discredit and / or harm Claimant, or Claimants business partners, resulting in injuring Claimant’s reputation, and a material Breach of Contract and / or Breach of Confidentiality Agreement (NDA), in which case he will be liable for Defamation.”

  11. A P Graham says:

    Honouring your contractual commitments is a must. Failure will always carry consequences.

  12. A P Graham says:

    An interesting comment from Mr Visotsky who has an extremely cavalier attitude to honouring contracts, and settling outstanding invoices.

  13. Dr. S A Visotsky says:

    GE Finance doesn’t care what the problem is, OCC signed a contract and is in breach of contract, full stop. They Sr./Jr. spent money they didn’t have on homes, toys, and crap. Sorry guys, you know it’s true. Most of the money should have been pumped back into the business to help them through lean times. The company has a concept that only works in a good economy anyway, the market is dead for such things right now.

    Don’t get me wrong, I am a fan. The problem was and is, they need advisors to show them how to act with money. How many times have we seen this in Pro sports? Every year another one going bankrupt for living beyond their means.

  14. Justatool says:

    I am not so sure your points really stand up to the facts.

    First, GE Finance is a business and owes a fiduciary duty to its shareholders. As such GE Finance should modify loan terms if the outcome of doing so is more profitable than not doing so in the long run. Did they do that? Who knows, since there is so much publicity surrounding OCC they may have determined that any modification would lead to other businesses wanting modification and decided against it. Or they could have determined the building will bring more on the open market than OCC was willing to pay.

    Second, as I understand it, GE Finance structured the loan as non-recourse. In doing so they were aware that if the building decreased significantly the owners would stop making payment as any rational business would. Why did they do it? Because non-recourse loans make more money (have higher interest rates). So GE Finance gambled on the building not lowering in value. They did not invest in OCC itself if they did they would have fully collateralized the building against all OCC assets. As for your question, yes, I am sure that if GE Finance made a loan with terms good enough OCC would pay them for the increase in value. Of course at the time the loan was made those terms would have probably been more like negative 8% interest.

    Third, if OCC sold their motorcycles with non-recourse loans and the value of the motorcycle declined under the balance of the loan then you’re damned skippy they would. Think of it this way if you could give back your car at any time without having to pay any more money when would you do it. The answer is the moment the value of the car was lower than the balance of what you owed plus whatever value you assign to not having to go car shopping and sign new loan papers.

    Fourth, you’re assuming that OCC is struggling financially that is why they are not paying the loan. This might be true, but if they were making more money than they have ever made before they should still give the building back. Any rational investor in a non-recourse loan on property that has a loan balance significantly above realizable value would give the building back. Why? Because every company’s goal is to maximize shareholder wealth, and not doing so violates the fiduciary duty to shareholders. As an interesting aside the concept was popularized by a former GE CEO Jack Welch.

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