California New Motor Vehicle Dealer Surety Bond
What is a new vehicle dealer bond?
Many states offer a single type of motor vehicle dealer license. However, some states, including Arkansas, Louisiana, Maryland, and Mississippi, make a distinction between new and used car dealers. In these states, dealerships selling new vehicles must post a new motor vehicle dealer surety bond.
Depending on what part of the country your business is in, you might refer to this type of policy as a "new car dealer bond" or "franchise dealership bond."
If you are unsure how your state handles vehicle dealer licensing and bonding, NNA Surety Bonds can help you navigate the process.
How much does this surety bond cost?
The cost of a new auto dealer bond can vary based upon three factors:
- The bond amount required by your state
- The finances of your business
- Your personal credit rating
States do not all require the same bond amounts. For example, new car dealers in Mississippi must post a $25,000 surety bond. Meanwhile, dealerships in Maryland that sell over 2,500 cars per year must post a $300,000 bond.
Regardless of the bond amount required by your state, you will only have to pay a small percentage of the policy as an annual fee—this is known as the bond’s premium.
Because premium rates are dependent upon the finances of your business and credit rating, your cost can vary from 1% to 15% of the bond amount.
Why do new auto dealers need a surety bond?
Laws and regulations are often complex and can be difficult to understand by average consumers. States require surety bonds for car dealerships to help protect consumers who may not be aware. Should you or someone at your dealership break a law, violate a regulation, or otherwise harm a customer, that individual may file a claim against your bond. If the claim is upheld in court, the bond will be used to reimburse the claimant for their loss. You will then be required to pay back this amount to the surety company.
A judgment against your bond can make renewing or obtaining new bonds difficult, which can then affect the status of your dealer license. In this way, surety bonds promote best business practices and help mitigate unethical behavior.