Car Makers Stop Leasing In New York

A little ridiculous, I must say:

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New York Times

ALBANY, April 23 - Two years ago, shopping for a sporty Chevrolet Cavalier, Jessica Coutsonikas took the route of many a first-time car-buyer short on cash but long on desire: she decided to lease.

But when she went to DePaula Chevrolet here on Thursday to lease a new car, she discovered that in New York, leasing the Cavalier was no longer an option. General Motors, which makes the car, is among nearly a dozen automobile makers, including Ford and DaimlerChrysler, and roughly 40 financial institutions that have decided that the financial risks of leasing cars in the state are too high because of a 1924 law that holds the owners of vehicles responsible for any accidents, even if the car is in not their possession.

That law, cited last year in a widely noted personal-injury case, has been invoked ever since in an increasing number of lawsuits against carmakers whose leased vehicles are involved in accidents.

The automakers began to stop leasing in the state last spring, offering alternative plans that look like leases but are actually purchases and typically cost the buyer more upfront. A few other manufacturers are still leasing cars, but many have added a fee to help offset the risks.

The automotive industry has implored lawmakers in Albany to amend or repeal the law. But it has been met head on with resistance from trial lawyers, who say the problem is not the law, but the automakers' exaggeration of the risks they face.

The battle highlights the way pressing business in Albany can stagnate, even when most major players agree there is a problem. In the meantime, small leasing companies are decamping, thousands of car buyers are paying the price, and lobbyists are raking in hundreds of thousands of dollars in fees as they fight in the wings.

"It's a total absurdity," said the State Senate majority leader, Joseph L. Bruno. "We are the only state in the United States who is socking it to consumers."

Car dealers, in lieu of leasing, have developed alternative plans. But, unlike traditional leasing deals, the new plans require a customer to pay sales tax for the full value of the car. The tax, which varies by county, averages about 8 percent of the car's value; for a car costing $20,000, the buyer would have to pay about $1,600 in taxes upfront.

"It's all way over my head," said Ms. Coutsonikas, sitting in the DePaula showroom. After the alternative Smart Buy plan was explained to her, she decided to take the simple route: she bought the new Cavalier outright.

The 1924 law establishing "vicarious liability" was intended to hold livery owners responsible when their penniless drivers caused damage they could not pay for. In recent years, however, lawyers have figured out how to use the statute in cases involving leased cars.

In 1999, Mark Chilberg of Youngstown, N.Y., ran over and severely injured his 15-year-old daughter, Amber, while she was sunbathing in the driveway. Last year a jury awarded Amber $1 million in damages and, on the principle of vicarious liability, decided that most of that sum had to be paid by the company that had leased Mr. Chilberg his car, the Ford Motor Credit Corporation.

With roughly 200 other cases in the state seeking to invoke vicarious liability, many in the automotive industry have decided they do not want to cope with the risks of leasing a car in New York.

All of the other states have similar laws that hold vehicle owners responsible, but have amended them to protect the automobile manufacturers and leasing companies. Rhode Island and Connecticut were the last to do so, amending their statutes last year. (In some New York cases, carmakers that have leased vehicles to out-of-state drivers have been found liable, but in other cases they have not, according to the New York State Trial Lawyers Association.)

In Albany, legislation to change the law has stalled. While the Republican-controlled State Senate passed a bill last year, the Assembly, controlled by Democrats, did not bring the measure up for a vote.

Mr. Bruno said that the inaction was a "great injustice" and that the source of resistance was the trial lawyers. "They look for the deepest pockets, just pure and simple," he said.

Gov. George E. Pataki has not taken a public position on the issue, but would like New Yorkers to be able to lease cars, said a spokesman, Kevin Quinn.

The Assembly speaker, Sheldon Silver, a Democrat and a trial lawyer, opposes any change in the law. He said that the issue for him was protecting victims of car accidents, and that carmakers were overreacting by refusing to lease. Cases involving vicarious liability are rare, he said, and damage awards against the industry even rarer.

"These guys got together as a cartel and are trying to force New York to change the law," Mr. Silver said. He said that if the companies colluded to deliberately restrain trade, they could be "in violation of the laws of this country."

Charles Territo, a spokesman for the Alliance of Automobile Manufacturers, said that suggestion was absurd. "Companies are clearly making their own decisions based on the competitive nature of the New York market," he said.

Porsche and Hyundai have joined the list of those refusing to lease in the state. Dozens of financial institutions, including Citibank, the Bank of America and the Chase Manhattan Automotive Finance Corporation, have also stopped financing lease deals. But Honda, which stopped leasing last spring, recently decided to resume, adding a $500 fee to "partially offset damages" from lawsuits. Other companies still leasing in New York often mention a similar fee in the fine print of their advertisements.

"Clearly there is a lot of concern," said Raj Sundaram, president of the Automotive Lease Guide, which is based in California. "New York is in the top three states in leasing."

While the number of drivers leasing cars across the country has dropped in recent years, the decline in New York has been even sharper. In 2002, 224,000 New Yorkers leased cars, according to the Alliance of Automobile Manufacturers. Last year, that number dropped to 142,656.

"I want the public to understand what they are losing," said Anthony J. DePaula, the president of DePaula Chevrolet. While all sorts of incentives have been created to entice buyers, Mr. DePaula said, it is simply common sense to change the law and get in line with the rest of the nation.

Mr. Silver said he would not be pressured into action. He bristled at industry suggestions that he was not moving to change the law because he himself is a trial lawyer. "I have never made a nickel on any case" involving unlimited vicarious liability, he said. He said his experience as a lawyer helped him understand the issue. "We are a citizen Legislature," he said. "One of the things we are supposed to bring to the Legislature is our personal expertise."

Far from being a sign of dysfunction, Albany's singular refusal to change the law is a badge of honor, Mr. Silver said, adding: "There is a little more integrity in the Legislature in New York. The big automobile manufacturers can't buy their way here."