By Michael Ellis
DETROIT, Jan 22 (Reuters) - General Motors Corp. and Ford Motor Co. said on Wednesday they will stop leasing vehicles in New York unless the state changes a law that holds automotive leasing companies, rather than drivers, liable in car accidents.
New York, Rhode Island and Connecticut have so-called "vicarious" liability laws that hold the owner of a vehicle liable for an unlimited amount in accidents.
In the case of leased or rented vehicles the owner is the company listed on the title, such as Ford Credit or General Motors' finance unit GMAC. Other states have changed their laws to limit liability.
"The exposure for us is in the millions," said GM spokesman Tom Henderson. "It's at a level where we can't justify continuing leasing in New York unless the laws change."
Leasing is about twice as popular in New York as in the rest of the country, largely because of tax breaks it offers businesses and the flexibility it gives drivers to have a new vehicle every few years. More than 20 percent of all GM and Ford vehicle sales in New York are leases, compared to 12 percent for the United States.
Earlier this year, New York State Sen. Owen Johnson, a Long Island Republican, submitted a bill that would transfer the liability to the lessee from the leasing company. The liability would be capped for car rental agencies.
Just eight states have vicarious liability laws that hold leasing or car rental companies liable, and Michigan, California and Minnesota recently capped the amount for which owners could be held liable, a summary of Johnson's bill said.
"The vast majority of states have updated this so that the laws make sense," said Ford spokesman Dan Jarvis.
Car rental and leasing companies paid more than $1 billion in vicarious liability claims in New York state in 1997 alone, the summary said. More than 30 independent leasing companies have gone out of business since September 2000 as a result of no insurance and exposure to liability claims, the summary said.
"We think that the Johnson bill is a really good solution," GM's Henderson said.
GM will discontinue leasing in New York on May 1 unless the law changes, Henderson said. The company has not set any deadlines for Connecticut and Rhode Island.
Effective March 1, GM will raise its initial leasing fee, a one-time administrative fee on leases, by $405 to $1,000 in New York and to $1,075 in Connecticut and Rhode Island.
Ford's finance arm Ford Credit began offering this year an alternative to a lease which still offers customers the chance to make monthly payments and get a new vehicle in three or four years, but transfers the ownership to the customer, Ford's Jarvis said. The program could also be offered in Rhode Island and Connecticut if the laws there do not change.