Trust is crucial in the motor vehicle dealership business. Customers trust dealers to provide honest details about cars. Sellers and lenders trust dealers to pay for vehicles and loans. The government trusts dealers to follow laws and pay taxes. To succeed, a dealer must earn and maintain trust. Motor vehicle dealer bonds protect customers, creditors, and the government if a dealer breaks the rules. Visit Alpha Surety Bonds to learn more about obtaining a motor vehicle dealer bond.
How Do Dealer Bonds Work?
A motor vehicle dealer bond is a type of surety bond, which involves three parties:
- The Principal – The dealer who must follow the rules.
- The Obligee – The state government that enforces the rules.
- The Surety – The insurance company that guarantees compensation if the dealer breaks the rules.
Who Can File a Claim?
Claims can be filed by:
- Customers who buy a vehicle.
- Sellers who sell vehicles to the dealer.
- Lenders who finance vehicle
- Creditors who finance the dealer’s inventory.
- Government regulators who issue dealership licenses.
Common reasons for claims include:
- Lying about a vehicle’s condition.
- Selling a vehicle without a valid title.
- Not paying required sales taxes.
- Selling stolen vehicles.
- Failing to report vehicle sales properly.
Many states have online databases to check if a dealer is licensed and bonded before purchasing.
The Claims Process
If someone has a complaint, they should first contact the dealer. If no solution is found, they can file a claim with the surety company. The surety will investigate and decide if the claim is valid. If so, the surety will pay the affected party, and the dealer must repay the surety.
Types of Dealers and Their Bonds
- Franchise Dealerships – Sell new and used vehicles under manufacturer agreements.
- Independent Used Vehicle Dealerships – Sell various brands of used vehicles.
- Wholesale Dealerships – Sell vehicles in bulk to other dealers.
- Wholesale Vehicle Auctions – Sell vehicles at auctions, mainly to dealers.
- Salvage Dealerships – Sell parts from dismantled vehicles.
- Trailer/Motorsports/RV Dealerships – Sell motorcycles, trailers, ATVs, or RVs.
Each state has different bond requirements, so dealers should check local laws.
State Requirements for Dealer Bonds
- New York: Bond amounts depend on sales volume. Dealers selling over 50 vehicles need a $100,000 bond; those selling fewer than 50 need a $20,000 bond.
- Florida & Georgia: Bonds expire on specific dates. For example, Georgia dealer bonds expire on March 31st of even-numbered years.
- Separate Bonds for Services: Some states require additional bonds for towing and repairs.
- Dealer Bonds Often Cover One Year: However, some sureties offer multi-year bonds.
How Much Do Dealer Bonds Cost?
- Bond Amount: Each state requires a different bond amount. The premium (cost) is usually 1% to 3% of the bond amount. Experienced dealers with good credit may pay less.
- Credit Score: A higher credit score means lower premiums. Dealers with a score below 625 may pay more.
If a dealer has bad credit, they can still get a bond using options like co-signers or premium financing.
