Special Report: The Problem with Renting Fast Cars

Crashed vehicles are a reality of any car rental business — particularly at the high end. This Lamborghini Gallardo, owned by Gotham Dream Cars, was wrecked on Christmas Day in 2004.
Crashed vehicles are a reality of any car rental business — particularly at the high end. This Lamborghini Gallardo, owned by Gotham Dream Cars, was wrecked on Christmas Day in 2004.

“Ready for a ride?”

Victor Negron fires up the Lamborghini, a $460,000 Aventador, named after a Spanish fighting bull and inspired by the U.S. military’s Stealth Fighter. The rocket exhaust does its job, startling me into anticipation and a dose of dread.

Negron plays nice — relatively — out of the driveway of American Luxury Auto Rental. We chew pavement along NW 25th and 26th streets, catching stares from the warehouses on this strip servicing Miami International. In the city that prides itself as the exotic car capital of America, this might then be the country’s exotic car ghetto. Non-descript, and that’s the way the rental companies here like it.

On this strip, the old-school exotic renters, such as American Luxury, share an uneasy truce with the upstart rental “companies,” some that pay little heed to fair business practices, insurance regulations and at times the law. Negron points out a cluttered sign attached to a brick building. “They were renting out stolen Mercedes that were re-vinned,” he says. “The cops came and picked up three of them last month.”

We head for the highway. Negron uses the on-ramp to the 112 as a launch pad of sorts. We’re at white-knuckle time in four seconds. “One hundred thirty, just like that,” Negron says. That’s miles per hour. We top that a few seconds later.

Negotiating Miami’s post-rush hour traffic at 100 miles per hour, propelled by 780 horses, the whole fast car thing gets real. It’s a visceral exclamation point of how owning them and renting them to people who want to drive them can be, to put it succinctly, a problem.

Scope of the Problem

Arriving back at American Luxury, we’re met by Negron’s backyard neighbor, Carlos Dolabella, owner of First Class Rent A Car, the godfather of the exotic renters in South Florida. We’re also joined by Bruno Vargas, owner of Speed Auto Rental, a relative newcomer.

“In the last two years, this market has become polluted,” Dolabella says.

"Some 20% to 30% of transactions of exotic rental cars in South Florida are brokered through individuals who do not own any cars and do not carry commercial auto insurance."


Dolabella, Negron and Vargas tell me that a good portion of the exotic car rental market in South Florida — by some estimates as many as 20% to 30% of transactions — are brokered through individuals who do not own any cars and do not carry commercial auto insurance. It’s hard to pinpoint the scope, because hundreds of transactions are executed without scrutiny.

The trio goes on to paint a picture of a side of the car rental industry that operates in muddy waters, perpetrating insurance fraud and other crimes while leaving insurers, legitimate companies and owners of personal cars holding the bag when something goes wrong. And they say it’s getting worse.

Insurance Issues

(Left to right) Victor Negron of American Luxury Auto, Carlos Dolabella of First Class Rent A Car and Bruno Vargas of Speed Auto Rental are fighting elements of the exotic car rental industry in South Florida that are perpetrating fraud, undercutting business and tarnishing the image of legitimate car rental operators.
(Left to right) Victor Negron of American Luxury Auto, Carlos Dolabella of First Class Rent A Car and Bruno Vargas of Speed Auto Rental are fighting elements of the exotic car rental industry in South Florida that are perpetrating fraud, undercutting business and tarnishing the image of legitimate car rental operators.

The rental of ridiculously expensive vehicles — Ferraris, Lamborghinis, Bentleys, Bugattis and Rolls Royces — differs materially from a standard car rental transaction, in that it is critical for the exotic rental company to vet and monitor its renters six ways to Sunday.

This entails taking a hefty deposit, from $2,500 to $50,000, running credit and sometimes background checks, and installing GPS devices in the cars to track them if a rental goes wrong. It also entails being consistently vigilant in confirming that the renter has personal auto insurance, which will cover liability and the value of the car, or at least a good portion of it.

With these stringent checks and balances, most rentals go off without a hitch, yet all exotic rental company owners will trade campfire stories of hair-raising accidents, criminal activity and disappearing cars.

While the majority of personal auto policies cover car rentals, not all personal policies cover exotic rentals. Is there a general trend for insurance carriers to mitigate exposure to exotics? “Absolutely,” says Tony DeBoor, national accounts manager for Zurich Insurance Group.

Many policies limit collision coverage to a like-kind in quality vehicle, which precludes paying out on a wrecked $200,000 Ferrari. Some carriers are even dropping exotics from their policies. In April of this year, Geico discontinued its coverage for physical damage to a rented exotic vehicle, though it still covers liability.

Further, typical rental car insurance offered through credit cards such as Visa, American Express, MasterCard and Discover don’t cover exotic cars. American Express does, for a flat fee of $24.95 per rental.

“When you’re dealing with $200,000 cars, insurance is everything,” DeBoor says. “Managing insurance claims in the world of exotics can make or break a company.”

High Stakes

While exotic rental companies depend on the renter to have insurance, fleet insurance is also a necessity — if you can get it.

Similar to the trend in personal coverage, commercial auto insurers are backing away from the market. Zurich, one of the largest carriers, has essentially frozen new coverage of exotics. “Zurich hasn’t withdrawn from the exotic and luxury car rental market per se,” says DeBoor, “but we’ve tightened our criteria to preclude us from getting involved in any of that dark side.”

Fleet insurance on a $200,000 car can run $400 to $1,300 a month, yet many policies carry high deductibles and don’t cover customer theft of the car. Sam Zaman, owner of Black & White Car Rental in Beverly Hills, pays “only” $450 per month for cars up to $300,000 in value — yet with a $20,000 deductible and the theft exclusion.

The parking lot of American Luxury Rentals in Miami — about the size of a basketball court  — houses a fleet of exotic vehicles with a total value of about $4 million.
The parking lot of American Luxury Rentals in Miami — about the size of a basketball court  — houses a fleet of exotic vehicles with a total value of about $4 million.

“Theft is the biggest fear we have, and lately we have had some close calls,” says Zaman, who recounts a recent rental of a Lamborghini in which the renter provided a seemingly valid driver’s license and credit card. While his counter agent was able to ring through a deposit of $50,000 on the customer’s credit card, six days later the bank called to question the transaction.

“We verified our customer’s name and sure enough we found out it did not match the actual cardholder,” Zaman says. “It turns out the customer made the credit card. There is no way my counter agent could have ever known that. The card looked 100% authentic.”

The renter left the car at a hotel. “If he were to keep the car, steal it, part it, ship it or whatever,” Zaman continues, “we would have been out of a $280,000 Lambo and no [ability to file an] insurance claim.”

Even with the high price of insurance, rental companies loathe filing claims, because a series of them could cause their carrier to drop them completely. This happened in December 2011 to HiGear, a peer-to-peer exotic car rental company in San Francisco, when four privately owned vehicles with a total value of around $300,000 were stolen using fraudulent documents.

The cars were recovered; however, the company was forced to shut down. “This incident exposed us to the worst-case risks inherent in our service,” wrote HiGear CEO Ali Moiz to members. “Even by improving security and processes, we are not completely sure we can prevent an incident of this sort from happening again given the peer-to-peer nature of our service.”

But it was an accident that sent ripples through the world of exotic rental companies and those that insure them. In May 2012, two employees of Gotham Dream Cars — an established, highly regarded and properly insured exotic car rental company — were driving Ferraris in East Rutherford, N.J., when one of them struck and killed a motorcyclist.

The two employees face charges of aggravated manslaughter and vehicular homicide for reckless driving. A lawsuit filed by the family of the motorcyclist against the car rental company is pending.

Many Forms of Brokering

And yet these perils can be overlooked when renting vehicles for thousands of dollars a day. This fact alone will turn anyone’s eyes into dollar signs on a slot machine, and attract a lot of people who are ready to rent vehicles the wrong way.

Enter the world of brokering, where fleet funding, commercial insurance and even car ownership are not necessities. As the name suggests, brokers connect owners of exotic cars with renters. Simple in its base form, there are many permutations to a brokered car rental transaction. 
In a common scenario, established companies that own the cars and carry fleet insurance regularly horse trade with similar rental companies to better service their customers. This transaction is backed by the contract and insurance of one of the companies.

“There is little to no investigation of auto theft in South Florida, least of all rental cars,” says Joe Carrillo, a Miami-based private investigator who works with exotic rental companies to retrieve cars. “And the bad guys know.”

In the broker model, individuals will set up a company, often an LLC (limited liability company), and create a website with stock photos of cars they think they can procure. In a legitimate transaction, brokers connect a renter to an established rental company and take a cut for their service. They rely on the renter’s insurance as primary and the rental company’s commercial policy as secondary.

Slipping into a gray area, brokers will rent vehicles from legitimate companies in their personal names and then re-rent the vehicles to personal clients without the rental companies’ knowledge.

Zaman discovered this when he noticed that photos of cars rented by a regular customer were ending up on a mysterious rental website. “I found out he was the owner of the company,” Zaman says. “I stopped renting to him immediately.”

Even more common is the renting out of personal vehicles, in which brokers borrow from a large pool of owners who can’t make their payments or just want to make a buck on the side.

The cars are brokered through informal lease (often called sublease or leaseback) agreements between the owner and the rental company. Popular with recreational vehicles, legitimate companies will add the privately owned vehicle to their commercial insurance policy. Lacking commercial insurance, a broker must take pains to ensure that the renter’s insurance policy is in force — and will pay out.

Dangerous Ground

The brokering of rental cars muddies the insurance waters, specifically when a personal car is used. In a standard personal auto insurance policy, an agreement to use the vehicle in a commercial nature is a direct breach of contract.

“Once a car owner gives his or her car to another party to rent, even if they keep their personal auto policy in force, the personal auto policy is most likely not going to pay and defend a claim in the event that there is an accident involving the car,” DeBoor says.

Moreover, if the exotic car is financed or leased (and most are), commercial use of the vehicle is a breach of a standard lease or finance contract.

Ronnie Garber of 718 Leasing, a lessor of exotic cars in New York City, is fairly sure that a percentage of his customers are leasing out his cars in personal names and turning around to rent them out. “What he does after [the lease] is his business,” he says. “But he’s playing with fire.”

Zaman encountered the wrath of a financing company when he personally leased his “dream car,” a rare Ferrari 599.

While Zaman had no intention to rent the car and had fully disclosed his business on the lease application, “After one month of owning the car, the bank sent a repo team and repossessed the car straight from my office late at night while we were closed,” he says. “They refused to return the car or the $85,000 down payment I had given them.”

Zaman took the leasing company to court and won. “I honestly never did rent the car, but here is a sample of how the banks take sub-renting cars so seriously,” he says.

How to Avoid Renting a Personally Owned Exotic Car

1. If the car has a dealer plate, it is most likely not a rental. 

Some exotic car dealers rent vehicles through brokers to get the slow sellers out of the showroom.These vehicles are not registered as rental vehicles.

2. Is the fleet too good to be true?

Be especially wary of a rental company in business for a short period of time and advertising a fleet of exotic cars valued in the millions of dollars. The company may not yet even know where it will procure those vehicles when someone asks to rent them.

3. Is the car heavily customized?

Cars with custom wheels, body kits and vanity plates are a sign of a personally owned car. For a rental company, there's no value in spending extra for custom rims because they're more expensive to repair and harder to replace if damaged.

4. Check the company's website: do the pictures of cars appear to be stock photography?

While legitimate rental companies may use stock photography, it's all too easy to pull generic photos from auto manufacturers' websites and advertise them as rentals.

5. Ask to see the company's commercial fleet insurance policy.

While rental companies are not obligated to reveal the details of their policies, go ahead and ask.

6. Ask to see the company's registration document.

A properly registered vehicle should be in the rental company's name, even if it's financed or leased.

7. Ask if the company offers a collision damage waiver through a third-party insurer.

Third-party insurers do not offer a collision damage waiver (CDW) product on non-owned vehicles.

Liability Exposure

Insurance aside, a brokered transaction leaves the car owner exposed to liability. The lease agreement — the cornerstone of a brokered rental — at best demonstrates that the broker or rental company has the legal right to use the car. But it does not absolve the car owner from liability arising from a third party using that car.

Traditional rental companies and leasing companies are protected by laws that eliminate vicarious liability (such as the federal Graves Amendment) or state laws that cap vicarious liability. These laws usually only apply to vehicle owners “engaged in the trade or business of renting or leasing motor vehicles.”

“Those laws are not likely to help the individual who owns an exotic car and wants to make some side income by allowing it to be rented out,” says Greg Johnson, a Minnesota attorney focusing on auto dealers and rental car and transportation companies. “Additionally, the vehicle owner remains on the hook for claims of direct negligence, such as negligent vehicle maintenance or even negligent entrustment.”

“Cars get in accidents, people get hurt and lawsuits happen,” Johnson continues. “When the driver of an exotic car causes big injuries in a collision, the owner is likely going to be sued, too. And that liability may not be covered by the owner’s personal auto policy due to its business use exclusions.”   

A Florida Thing

Now layer the brokering model onto its epicenter, South Florida.

According to a 2012 study by the Insurance Research Council, Florida had the second most number of uninsured motorists of any state in the country — almost 24% of Florida drivers were not properly insured.

Florida is also the capital of insurance fraud, identified by the National Insurance Crime Bureau (NICB) as the state with the most organized crime-related “questionable claims” submissions both by volume and per capita. (The great majority of these claims were related to staged auto accidents, endemic to states with no-fault personal injury protection.)

According to the NICB, Florida ranked second in luxury auto thefts from 2009 to 2012, while the Miami-Ft. Lauderdale area has the second highest number of unrecovered thefts. It may come as no surprise that the federal auto theft task forces serving Broward and Miami-Dade counties both disbanded in the last three years.

“There is little to no investigation of auto theft in South Florida, least of all rental cars,” says Joe Carrillo, a Miami-based private investigator who works with exotic rental companies to retrieve cars. “And the bad guys know.”

“It’s easy money,” says Tony Fernandez, an insurance fraud investigator working in Florida for the NICB. “[The criminals] know it’s hard to get law enforcement involved because they don’t have the time or the manpower. I don’t have the manpower to do auto theft the way it should be done.”

Missing Cars

Carrillo, who works with American Luxury, has stories. His last retrieval involved a Romanian organized crime family that rented a Mercedes S550. “Within a week, they had it retitled and sold in California,” Carrillo says. “We stopped them in the middle of the desert.”

He also mentions the renter who used the Bacardi name — as in spirits — to rent another S550. “She rented it for a day and kept it for a year and a half,” Carrillo says. “We ended up chasing it up to Chicago; it took us about a year and five months [to recover].”

At the time of the interview, Fernandez was investigating the theft through fraud of seven luxury cars owned by Hertz. Three had been recovered so far. One of them, a Mercedes, “showed up at Port Everglades ready to be exported to the Bahamas, and the [vehicle identification] numbers had been changed,” Fernandez says.

Earlier this year, Gene Smith of Auto Xotics, a Ft. Lauderdale rental company, lent his Mercedes S550 to two brokers. “I didn’t know these guys that well, and I didn’t know who they were giving [the car] to,” he says. “That night, I got a phone call: ‘Gene, can you use the GPS tracking to shut the car down?’”

Smith remotely disabled the Mercedes and then jumped in his own car to find it. “I’m driving around; I see it behind a steel gate with a cloth over it,” he says. “I call the cops, but they say they can’t be involved. They told me I was in the worst area of North Miami.”

Smith says he used bolt cutters to break through the gate. He then called a towing company to reconnect the battery. “The whole time I’m thinking, I’m going to get shot. Long story short, I stole my car back.”
The thieves damaged the car by towing it while disabled. “The guys I loaned the car to, they said they’ll fix it. They didn’t.” Smith says. “I don’t give my cars out anymore. Unless that company has beautiful cars to offer me, I’m not giving my cars to them.”

CONTINUED:  Special Report: The Problem with Renting Fast Cars
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Comments

  1. JAvier Caceres [ March 9, 2015 @ 09:05AM ]

    Great story, I liked the way you made your investigation

  2. Tom Prunty [ March 9, 2015 @ 04:54PM ]

    Very in depth story. You didn't pull any punches. I wish more journalism was as good.

  3. Morris [ March 22, 2015 @ 08:15PM ]

    You have guys doing the same in Brooklyn NY who suddenly began renting high end luxury cars who broker the cars using privately leased luxury cars

  4. Morris [ March 23, 2015 @ 04:33AM ]

    You have guys doing the same in Brooklyn NY who suddenly began renting high end luxury cars who broker the cars using privately leased luxury cars

  5. Morris [ March 23, 2015 @ 04:33AM ]

    You have guys doing the same in Brooklyn NY who suddenly began renting high end luxury cars who broker the cars using privately leased luxury cars

  6. Paola [ May 26, 2015 @ 01:43PM ]

    This was a great story! Remarkable research!

    For anyone that wants to lease a luxury car instead of renting one, check out lmgbrokers.com they have great deals and if you mention "May Deal", you can get great deals. call 954-862-1474

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