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Free Minds & Free Markets

How New York Strangled Its Mom-and-Pop Rental Car Companies

Why does an economy car rent for an astonishing $161 per day in Manhattan? Because onerous insurance laws cartelized the industry.

mathisworks/iStockmathisworks/iStockWhen Sam Cygler started AllCar Rent-A-Car in 1979, New York City was home to over 100 mom-and-pop rental car companies. Cygler, who at the time was running an auto repair shop in Brooklyn far from the subway, noticed that his customers often needed loaner vehicles to get to work. So he bought a couple of cars and put them up for rent. The idea took off, eclipsing the repair business altogether. AllCar Rent-A-Car grew to have 12 locations in the Big Apple with a fleet of about 2,000 vehicles.

Chains like Hertz and Avis, with their national reach and corporate partnerships, have long dominated the car rental industry. But New York's low rate of vehicle ownership provided plenty of market opportunities for local operators. By constantly "nipping at the heels of the majors," says Sharon Faulkner, executive director of the American Car Rental Association (ACRA), the independents helped keep overall rates down.

Then, a decade after Cygler got started in the industry, a series of punitive state laws started wiping out New York's mom-and-pop rental car shops. AllCar was able to stay afloat for quite a while, thanks to a couple of lucrative contracts. But when Cygler's son, Gil, finally sold the company to Enterprise in 2015, it was among the very last of a dying breed. Today, the national chains operate virtually unchallenged in the New York market—and it's no wonder that renting an economy vehicle from Avis on a weekend day in Manhattan costs an astonishing $161.

Trouble for the independents started in 1989, when the state passed a law limiting what rental companies could charge for vehicle damage to a mere $100. Customers could total a rental car and pay less than the cost of a steak dinner for two in Midtown Manhattan. Compounding the risk, Albany set the minimum age to rent at just 18 and prohibited companies from requiring that customers hold a personal car insurance policy or even a credit card. According to Faulkner, some 200 operators in the state went out of business shortly after the law went into effect.

Under its so-called "vicarious liability law," New York also exposed rental car companies to the risk of having to insure for unlimited damages when their customers were found negligent. In 1997, Faulkner was running an independent outfit in upstate New York when she got sued because an unauthorized driver—the 15-year-old son of the woman who had actually rented the vehicle—hit a pedestrian.(Faulkner's insurance company settled for an undisclosed sum.) The largest award came in 2003, when Budget was ordered to pay nearly $20 million to an accident victim.

These laws disproportionately hurt independent rental companies. The major operators are large enough to self-insure their vehicles—if someone wrecks a car, they can eat the cost and survive. The mom-and-pop outfits, on the other hand, have to buy policies on the open market. As the number of claims increased (driven in part by rampant customer fraud), insurers started withdrawing from New York altogether to avoid the headaches. Faulkner says many shops went out of business simply because nobody would sell them a policy.

The regulatory environment did improve. In 2002, the state repealed the $100 limit on what customers can be made to pay for vehicle damage, and the 2005 federal highway bill annulled New York's vicarious liability law.

But it was too little, too late. Most of the independents were already gone, and another onerous insurance law continues to scare off new entrants: New York is one of seven "primary" states (in addition to the District of Columbia), meaning that when a driver causes injury, death, or property damage to another person, the rental car company provides the first line of insurance for any claims—even if the customer declined supplemental coverage. In the rest of the country, a driver's personal or corporate insurance policy is the first to pay.

Thus, it's still a challenge for independent rental companies to find insurance vendors willing to cover them. New York's status as a primary state also explains why the car-sharing platform Turo received a cease-and-desist letter from the Department of Financial Services in 2013, forcing it to pull out of the state. Turo (originally "RelayRides") provides its users with liability insurance, but in New York the personal insurance policy of the car's owner by law must be primary, even though personal policies aren't written for this purpose. So if I loan you my car and you hit a pedestrian, my insurer is on the hook just the same as if I had been driving.

By the time he sold to Enterprise in 2015, Gil Cygler says the "writing was on the wall." The company's longtime insurance provider, Hartford, had withdrawn from the market, and it was getting much tougher to procure insurance. New Yorkers looking for a discount vehicle rental now have one option left: hop a train to New Jersey.

Photo Credit: mathisworks/iStock

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  • Longtobefree||

    As an IT contractor, I worked at many insurance companies, and all had separate systems for New York, or did not do business in New York at all. The regulatory burden in that state does in fact suppress economic freedom.

  • perlchpr||

    And yet sadly, there's still so much business activity that the city is rich, and the fuckers at the top who get to skim off the cream still get to be filthy rich with their ill-gotten gains, that despite the fact that they could be much, much richer, they don't realize how badly they're fucking themselves.

  • Rhywun||

    I do similar work and it's actually worse in Mass. believe it or not. To the point where my previous company didn't bother doing auto business there.

  • perlchpr||

    Many of those provisions of law seem simply insane.

    What possible benefit could there be to limiting damage liability for the customer like that?

  • sarcasmic||

    Most of these rules are written by big companies. They have teams of lawyers whose only job is to write legislation and regulation. That is passed onto government officials along with hefty campaign contributions. Next thing you know, the company has a de facto monopoly.

    Government officials claim to be protecting consumers from predatory businesses, while taking bribes in the form of campaign contributions from the companies that benefit from having the competition close their doors.

    That's how government works.

    Google "bootleggers and baptists."

  • Enjoy Every Sandwich||

    Come on, that can't be true. I've been assured by our resident Progs that government is a noble, selfless, tireless Champion Of The People and an unfailing bulwark against Evul Corporashuns.

  • sarcasmic||

    Well, yeah. Government protects us from the Evul Corporashuns that would charge more than $100 for repairs. Pay no attention to the Evul Corporashuns that benefit and the small businesses that are shut down by those policies. That's not the stated intention, so it can't possibly be the result.

  • Cynical Asshole||

    That all just means that we should make the government bigger and more powerful so that it can control the KKKOCHPORAYSHUNZ that control it.

    And then, if the KKKOCHPORAYSHUNZ are still able to control the government, that just means we need to make government bigger and more powerful so that it can control the KKKOCHPORAYSHUNZ that control it.

    And then, if the KKKOCHPORAYSHUNZ are still able to control the government, that just means we need to make government bigger and more powerful so that it can control the KKKOCHPORAYSHUNZ that control it.

    And then, if the KKKOCHPORAYSHUNZ are still able to control the government, that just means we need to make government bigger and more powerful so that it can control the KKKOCHPORAYSHUNZ that control it.

    And then, if the KKKOCHPORAYSHUNZ are still able to control the government, that just means we need to make government bigger and more powerful so that it can control the KKKOCHPORAYSHUNZ that control it.

    And then, if the KKKOCHPORAYSHUNZ are still able to control the government, that just means we need to make government bigger and more powerful so that it can control the KKKOCHPORAYSHUNZ that control it. /Tony

  • sarcasmic||

    Dude, you stole that from me.

  • Cynical Asshole||

    Well, that's kind of embarrassing. I knew I stole it from someone, just didn't remember it was you. Although there's a fine line between stealing and paying homage.

  • Curly4||

    Yes make the government bigger and soon everyone will be working for the government and wages, hours, food prices, rent and even medical care will come from government. Government will soon own it all including your soul if you have one!

  • I am the 0.000000013%||

    Now just hold on there. Next you'll be saying our precious Net Neutrality hero Tom Wheeler was affiliated with the big ISP's when he was ramming implementing Net Neutrality down our throats

  • jdgalt1||

    Bingo. Anyone who thinks the effect of this law was an accident is so stupid he's probably still a Democrat.

  • sarcasmic||

    The government officials claim to be protecting consumers from greedy businesses that charge unfair damages, while the companies that can afford to eat the cost have the competition put out business.

  • Cyto||

    Yeah, it seems pretty clear that they were playing the long game. Put all the little guys out of business and eat the cost for a decade, then fix the laws to be even more friendly to the established players.

    Although if you don't have to carry your own insurance and the rental company is responsible for your negligence - or even if you let your 15 year old kid drive - it is no wonder that it costs $160 to rent an economy car for a day. I'm surprised you can find one at all.

    - oh, if you haven't done the rental thing, in most of the country you can often find an economy car for less than $20 per day using tools like priceline. The taxes can be as much or more than the rental if you catch them at a really good price.

  • gaoxiaen||

    That was how it went down for independent truckers. Only the big operators could afford compliance costs. After the independents folded, there was a campaign to deregulate trucking.

  • perlchpr||

    A 15 year old who was almost certainly not licensed, even.

  • Mark22||

    Yeah, it seems pretty clear that they were playing the long game.

    But this wouldn't have happened if it had been unpopular with voters. It passed because most voters either don't care much or actually prefer it.

  • Mark22||

    What possible benefit could there be to limiting damage liability for the customer like that?

    Young voters like it because it promises to get them vehicles they would otherwise be prohibited from renting.

    Big car rental companies like it because it creates barriers to entry.

    Some insurance companies like it because it lets them justify raising rates to regulators.

    Most of the rest of the rental business is business travelers and tourists who don't vote in NYC.

    Politicians give voters what voters think they want.

  • Cynical Asshole||

    Chains like Hertz and Avis, with their national reach and corporate partnerships, have long dominated the car rental industry. But New York's low rate of vehicle ownership provided plenty of market opportunities for local operators. By constantly "nipping at the heels of the majors," says Sharon Faulkner, executive director of the American Car Rental Association (ACRA), the independents helped keep overall rates down.

    Which I'm sure the big chains were completely copacetic with that.

    Then, a decade after Cygler got started in the industry, a series of punitive state laws started wiping out New York's mom-and-pop rental car shops.

    Gee, who could have seen that coming? /sarc

  • Wrath0fKahn||

    I wonder at what point companies and headquarters will actually start to leave NY and CA because of the regulatory burderns and tax rates.

  • Missy||

    I'm a physician in NYC and I can tell you the problem is the no-fault insurance system. People make a living getting into auto accidents, going to these fraud healthcare clinics, and getting a payout after they have built up their 'case'. I'm surprised no reporter has gone to the Bronx undercover and exposed this. We waste so much healthcare dollars on this and the sad part is when someone is in a real auto accident, they can't get decent care since everyone is committing fraud that takes this insurance.

  • Fuck You - Cut Spending||

    I'm surprised no reporter has gone to the Bronx undercover

    If you're surprised at that, you're more naiive than you think you are.

  • Missy||

    It's not comprehensible that the cost of living, minimum wage and taxes are higher in the SF Bay Area yet auto insurance is half of NYC, bridge tolls are a third and everyone is OK with all the corruption in NY that makes these higher costs possible. Maybe instead of blaming Trump for everything imaginable we need to start holding our local politicians accountable. NY Times should start looking local.

  • john jerome||

    This definitely New York state and City need to do something that will help small businesses or there will be no middle class left in the city or state.
    Family run car rentals are scarce Aamcar.com is still hanging on but they take a beating with every new regulation.

  • Peacedog||

    It's actually worse than the article lets on.

    The last time I rented in NY it cost me over $300 for a mid-size over a weekend. I went out to the airport. They said they had to see an airline ticket or I had to present auto insurance on a car I owned or they wouldn't rent to me at all.

    Where they really fucked me was on an ezpass device. I thought I was paying for tolls only plus an access fee. Instead it was something outrageous like $25 a day. Between the rental cost for the device and taxes, plus an airport tax, it added about $100 to the quoted fee.

    They also, for all intensive purposes, didn't honor the price I booked online for the car by adding on different taxes and fees not originally included in the rental price. When I complained they said I could just not rent the car.

    It is the only time in my life I've called a front desk worker a thief and told him to go fuck himself. The guy couldn't even look me in the eye. The manager was predictably "unavailable."

    Also, I was limited to a mid-sized passenger car. I couldn't rent a truck for example.

    This was from a major rental company.

    And if you try to rent last minute online through an agency like Travelocity, etc. the airport agencies will claim not only outrageous rates but nothing except luxury vehicles will be available.

  • Rockabilly||

    Why doesn't Robert De Niro angry about this?

    Instead of blowing gaskets about trumps, he could get some of his pals together to have a musical version of Taxi Driver?

    Get out the old mohawk, unless that's cultural appropriations, and put on a show about the common folks of New York City trying to live their dream only to get fucked by the pointy head bureaucrats and the fat cats??

    Well, Bobby, put up or shut up. You can't do a damn thing about the trumps but you can about the hard working folks in your own fucking city.

  • Kha Tran||

  • gphx||

    Uber style car rentals are coming.

  • jdgalt1||

    They've already been tried and failed. That's exactly what Turo would have been.

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