In order to open up a new or used car dealership in the state of California, you’ll need to start by obtaining your motor vehicle dealer license and a California motor vehicle dealer bond. Your dealer license is a way to let your customers know that they can buy with confidence, because you've met all of the licensing requirements for California’s motor vehicle dealer board.
Your bond protects your customers from malfeasance, and they can file claims with the bond issuer as needed. Consumers are also protected if a bonded car dealer goes out of business or otherwise has financial problems that renders it incapable of settling with its obligees.
Should a claim be filed against your surety bond, your surety company will investigate it on your behalf and determine its validity. Here’s a quick look at the bond requirements for car dealers in California.
What Is a California Auto Dealer Bond?
The California Department of Motor Vehicles (DMV) issues an auto dealer license as a way of ensuring that auto dealers in California abide by the rules and regulations of their license. The car dealer bond protects the consumers (also known as the bond oblige or obligee) from any financial losses resulting in negligence or malfeasance by the auto dealer. The bond requirement also provides the necessary financial security to ensure enforcement of the California license law. Dealers must purchase and maintain a motor vehicle dealer surety bond, and the actual amount for the auto dealer bond will be based on the dealer’s license type and the business owner’s personal credit.
What Are the Types of California Auto Dealer Bonds?
There are numerous types of California surety bonds that new dealers can apply for. The surety bond that best matches your situation depends entirely on your business practices. The amount and type of auto dealer bond that's needed for your dealership are based on the category your business falls under. The primary ones are:
- New or used car dealers
- Wholesale-only dealers who sell fewer than 25 vehicles each year
- New or used motorcycle dealers
- New or used all-terrain vehicle dealers
Wholesale-only dealers and ATV dealers typically must obtain a surety bond for $10,000. Any new or used motor vehicle dealers that sell more than 25 vehicles a year will need to obtain a surety bond that's valued at $50,000.
Who Should Get a California Auto Dealer Bond?
The California Department of Motor Vehicles requires a surety bond for every California auto dealer. The bond amount will depend on the type of license needed. The required bond amount is $50,000 for all retail car dealers who sell more than 25 cars a year. The surety bond amount is $10,000 for wholesalers who sell under 25 vehicles annually, or if you’re a retail detailer that exclusively sells motorcycles and/or ATVs.
By posting a surety bond, you make a guarantee to the DMV that you'll engage in ethical business practices in compliance with the Vehicle Code. The surety bond covers damages to harmed parties all the way up to the full penal amount of the auto dealer bond.
Documents and Licensing Requirements
Any individual who wants to earn a motor vehicle dealer license will need to submit an application alongside various fees to the California DMV. The types of forms that you'll need to fill out and submit with your application include:
- An application for the original occupational license
- A surety bond for the dealer
- An authorization that allows financial information to be released
- A certificate of the proposed franchise
- A DMV request for live scan service
The additional documents that should be submitted include:
- Evidence that the vehicle dealer's written examination has been successfully completed
- A certificate of completion for original dealer education
- An SI 550 statement of information when filing as a corporation
- An LLC 12 statement of information when filing as a limited liability company
- A signed copy of a lease or rental agreement
- A copy of your certificate of occupancy license, tax certificate, or business license
- Photographs of your current place of business
The dealer education program mentioned above involves a final exam. Applicants are allowed three separate attempts to fully pass this exam before they will need to retake the entire program. Every additional exam attempt comes with a fee requirement of $16. A letter of authorization is necessary for new trailer dealers. You should also look into obtaining dealer license plates at this stage of the process.
As for the photographs of the business location that are required for the application, these must include images of every business location in California to ensure that each location complies with the California licensing requirements and guidelines. Make sure that you obtain a sales tax permit before you send in your application. The resale permit can be sought from the California Department of Tax and Fee Administration (CDTFA).
How Much Does a California Auto Dealer Bond Cost?
The cost of a California auto dealer bond will depend on which type of license that you need. A $50,000 retail dealer bond will cost $400 – $4,500 per year, and your bond premium will be determined by the business owner’s credit rating. Highly qualified applicants with good credit can usually expect to pay 1-3% of the total bond amount.
|California Auto Dealer Bond Costs|
|License type||Bond Amount||Starting Price|
|California auto dealers||$10,000||$100|
|California ATV dealers, motorcycle dealers, motorcycle lessor-retailers, and wholesale dealers selling less than 25 vehicles per year||$50,000||$500|
To get a better estimate of your auto dealer bond cost, take a look at our convenient surety bond cost guide. Our cost guide might not be the final cost of your dealer surety bond, but it will give you a reasonable estimate. Your final cost will be determined after underwriting is complete.
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How Can I Get a California Auto Dealer License?
Applying for a California dealer license is a detailed process, and you can find the detailed information about the license application process in the Vehicle Industry Procedures Manual. Here’s a very short look at how the process works. Your dealer’s license has a one-year expiration date, and you will need to repeat the process each year. The license is a prerequisite for your auto dealer surety bond.
1. Complete the License Application
Your first step will be to complete your license form, which will include a live fingerprint scan. You will also need to include photographs of your business location, and you’ll need to complete the dealer education program from an approved vendor. You can find all of the forms that you need directly on the California DMV website.
All new and used auto dealers must complete the program, and each applicant has three attempts to complete the exam. Each exam costs a $16 fee, and if a dealer is unable to pass the exam on the third try, they will need to repeat the dealer education program before attempting the exam again.[TB2]
2. Schedule an Appointment With the Occupational Licensing Inspector
After you've completed your application, your dealer education program, and all necessary certifications, you’ll need a site inspection. You’ll need to contact the California Occupational Licensing (OL) Inspector to schedule an appointment. The OL Inspector will inspect the place of business to confirm that the main office is in compliance with California licensing requirements. All of the books and records relevant to the business will need to be available for viewing, and you’ll need to review the inspection checklist personally prior to the visit.
If you’re a wholesale dealer, you won’t have the same requirements for a showroom or signage as a retail auto dealership. Be sure to ask your OL specific questions before, during, and after the inspection. The OL is there to make sure that you’re running a quality operation and should always be willing to work with you to help you pass your inspection successfully.
3. Pay Your Application Fee
The final step is to submit your non-refundable $175 license fee. You’ll also have to pay a $1 family support program fee, and a $16 exam fee for the dealer education program examination. If you have to retake the examination, you’ll need to pay $16 for each subsequent testing session.
4. Complete Your Surety Bond Application
One of the crucial steps is obtaining your auto dealer bond. This process is very simple. Just fill our online application form and we will get back to you with the quote that best suits your needs. Getting your surety bond is a legal requirement in getting your auto dealer license.
Can I Get a California Auto Dealer Bond With Bad Credit?
You can expect the most favorable bond pricing if you have an excellent credit score, but you shouldn’t be discouraged if you have some rough spots in your credit. Most businesses and consumers have cash flow problems from time to time, and you can expect to pay a higher interest rate if you have a lower credit score. But Bryant Surety Bonds is happy to offer a Bad Credit Program to help high-risk applicants get approved for a surety bond.
If your credit isn’t perfect, or if you’ve filed past bankruptcies, you can always contact our surety agents for personalized recommendations to help you build a strong application. Bankruptcies, tax liens and civil judgments shouldn’t affect your ability to get the bond that you need so that you can get yourself and your business back on track!
What Can Dealers Do to Avoid Claims Against the California Auto Dealer Bond?
It's possible for customers to file claims against dealerships under the belief that the dealership in question hasn't adhered to its obligations according to state and federal laws. These claims are usually filed when a customer states that a dealership has intentionally violated state law on how car dealerships can act. However, there are times when claims are filed as a result of a misunderstanding.
Potential claimants include:
- Any customers
- The state of California
- Practically any other individual
There are many situations that can cause someone to file a claim against a car dealership. The primary ones include:
- Not meeting the warranty obligations
- Selling motor vehicles that have been previously stolen
- Not paying mandatory sales taxes
- Not paying lenders
- Not accurately representing the condition of a motor vehicle during a transaction
- Not paying for vehicles, which extends to trade-in vehicles
- Not providing a title when a vehicle is purchased
- Not reporting that a sale has occurred
In the event that a claim is filed against a dealership, the claim process involves six separate steps:
- The claimant fills out and completes a bond claim form.
- The claim is filed directly with the surety company that was responsible for issuing the bond.
- The surety will investigate the claim to determine its validity.
- The claim will be deemed to be valid or invalid.
- If a valid claim isn't satisfied by the dealership, the surety reimburses the claimant for all losses.
- The dealership must repay the surety.
Keep in mind that the reimbursement can't be higher than the surety bond amount. In the event that the dealership has a $10,000 bond, the claimant can't receive reimbursement that's higher than $10,000. The dealership is required to repay the surety as a result of an indemnity agreement that was signed by the dealership before they purchased the bond in question.
There are times when an auto dealer license can be revoked in the event that a dealer bond claim is found to be valid. Even if the claim is invalid, the result isn't great for the dealership. Claims are similar to tickets for traffic violations. The claim will remain on your record, which makes it more difficult to obtain a surety bond in the future.
The easiest way to avoid claims against the surety bond is by running an ethical and honest business. To do so, make sure that you study federal and state regulations for car dealers, understand the details and language of your auto dealer bond, and correct any disputes or issues you have with customers.
If ever a claim is filed, certain steps must be taken. Not complying with the claim process might result in more severe consequences. During the claims process, auto dealership owners should work with an accountant or lawyer to evaluate their case.
The auto dealership should also be honest and communicative throughout the entire claim process. Efficient communication is necessary to ensure that the facts surrounding the claim are understood by everyone.
How to Find the Right Bond Company
The surety company that issues your license bond is standing up for your business, and you owe it to yourself to find a company that you can trust. Our team at Bryant Surety Bonds is always a phone call away when you have any questions, and we can give you a free bond quote in two hours! Please complete our online application for your free quote on a California motor vehicle dealer license bond!