How’s Business?: Leasing obstacles

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Insurance woes continue to be a thorn in the economy’s side. Enter car leasing in combination with auto insurance, which fall under the “vicarious liability” law with “vicarious” defined as “in place of someone else.”

New York is just one of three states with this antiquated law still on the books, dating back to the livery days of 1924. The other two states with this law still in effect are Rhode Island and Connecticut.

Here is how it works.

When a car is leased, the leasing company retains ownership of the vehicle; therefore, if the driver is sued as a result of an accident in which the other party suffered injuries, the company is also held responsible.

Under the law, vehicle owners, financiers and leasing companies can be held accountable for such accident-related damages. The additional kicker is that a faulty driver is not a factor. The situation is becoming serious. GMAC is terminating its leasing program effective May 1.

And GMAC is not the lone ranger either. Standing in line at the leasing exit is the auto financing of J.P. Morgan Chase & Co. as well as the Ford Motor Credit Co. With 25 percent of cars on the road being leased, quite an impact can be felt.

And no one is really sympathetic to the dilemmas of car dealers, according to Bruce Bendell, chairman, CEO and president of the Major Automotive Companies Inc. in Long Island City.

Gray clouds have been hovering for quite some time, but perhaps what pushed everything to the edge was last year’s whopping $28 million judgment in Rhode Island, in which a leasing company was held responsible for accident-related damages. That appears to be the straw that broke the camel’s back.

Also causing sleepless nights for the industry is the reality of nearly an additional $2 billion in pending suits for damages directed against leasing companies in New York alone.

Help appeared to be on the way via measures taken by Assemblyman Ronald Canestrari, a Democrat from Albany, and state Sen. Owen Johnson, a Republican from Babylon, L.I.; however, their bill to eliminate the 1924 “vicarious liability” law failed in the Legislature for lack of support. But with word that Gov. George Pataki is looking into the issue, Canestrari and Johnson have reintroduced their bill.

Bendell said that the public can also come to the rescue by going to After getting to the Web site, click on the “Take Action” button in the upper right corner, and enter your zip code. Click “next,” enter your personal information and click “continue.” When your applicable state legislator appears on the screen, you can click “delivery of your letter.”

So how’s business for the car leasing industry? It’s presently on life support, but if New York wakes up and joins the other 47 states that have already addressed the issue, the prognosis will be more promising.

Joe Palumbo is the fund manager for The Palco Group, Inc. and can be reached at or 718-461-8317.

Updated 7:03 pm, October 10, 2011
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