Lawsuits Challenge Auto Leasing

It may be hard to believe, but General Motors Acceptance Corp. and other leasing companies, are being held liable for accidents involving drivers to whom GMAC had leased cars. The key issue is that GMAC, not the driver, owned the car. Misery loves company. Chase Manhattan Automotive Finance Corp. lost an $18.9 million verdict in Rhode Island. It was later settled for $15 million. Ford Motor Co. settled a similar suit last year for a bargain price of $5.4 million. Currently, "at least eight leasing companies face 215 lawsuits stemming from accidents in leased vehicles." In their excellent article in the New York Times, Karen Lundegard and Ruth Simon explore the origins and fallout from these lawsuits.

The law that spawned these suits has an interesting background. Back in the 1920s (before your time) cars were few and often chauffer driven. In an accident, the driver may have caused the accident, but he had no resources to pay any claims. To remedy this problem, a number of states passed "vicarious liability" laws. These placed the liability for damages on the owner of the car. Although many states have amended the law, ten states have not, including New York, Connecticut and Rhode Island. Leasing is an important sales tool in these states. For example, about a fourth of GM's new car sales in New York are financed with lease agreements.

Since about a fourth of new cars sold in New York are leased, the reaction to these legal problems could seriously curtail vehicle sales in that state. Ford has announced that by midyear it will no longer provide traditional leases in New York, but will substitute "a balloon- payment financing option in which in which the customer owns the car, but has the option of turning it back in to the company when the final payment is due."

How are consumers who lease cars in these states affected? GM is raising its leasing fees in New York by $405.