A motor vehicle dealer surety bond, or auto dealer bond, is a binding contract among three parties:
Surety bonds are meant to protect customers by encouraging compliance with auto industry regulations and ethical business practices. Should your dealership violate the terms of your business license and damages are awarded, your surety will distribute funds to the affected party in the event you don't pay the damages. You will then be required to pay back that amount to the surety company.
Auto dealer bonds play a valuable role in regulating the industry, protecting consumers, banks, and the state from losses caused by fraudulent, unethical, or other wrongful actions by the dealership and its employees.
Auto dealers in most states are required to post a motor vehicle dealer bond with the state's department of motor vehicles (DMV) as part of the business licensing process.
Anyone who is engaged in the business of selling, buying, or trading vehicles for sale or resale, including vehicles on consignment, is considered a dealer and must be licensed and have the appropriate surety bond.
Market rate for the bond premium is usually 1% of the bond amount required in your state. For example, a $15,000 motor vehicle dealer bond in Maryland carries an annual premium of $150.
You are likely to be offered market rate if you have a good personal credit score and do well on other measures, such as personal and business financial statements.
Here is a list of states in which NNA Surety Bonds provides DMV surety bonds for motor vehicle dealers:
|State||Bond Amount||Cost* (Annual Premium)|
|Alaska||$25,000 / $50,000||$438 / $875 (two years)|
|Arizona||$20,000 / $25,000 / $100,000||$200 / $250 / $1,000|
|California||$50,000||$400 – $2,500*|
Car dealer licensing requirements vary by state, but typically include:
To get started, check with your state’s DMV about motor vehicle dealer licensing requirements.
Not having the proper surety bond for your dealership can lead to fines and revocation of your license to sell cars.