California Auto Dealer Surety Bonds


California Motor Vehicle Dealer Surety Bond

This surety bond is a legal requirement set by the California Department of Motor Vehicles. In fact, it’s formal name is the California Motor Vehicle Dealer Bond. Anyone who wants to operate an auto dealership within the state will have to have the surety bond. It serves as a financial guarantee that protects customers, clients and governments from mishaps that could occur with business related to the dealership. The bond can be claimed by parties who are wronged by a dealership, provided the wrongdoing involves a compliance failure with DMV regulations. In such an event, the bond can be awarded, and the dealership will be penalized by having to pay out the surety bond. These penalties can go as high as $50,000, making the bond invaluable to a dealer that is financially responsible for maintaining enough liquid cash to pay the penalty.

Types of California Auto Dealer Bonds

California motor vehicle dealer bonds come in several different forms. The first two are the most common. There is a bond for the retail of new vehicles. This applies to dealerships that sell 25 or more vehicles in a year. The second is for the retail of used vehicles, and it also applies to a business that hits the 25 per year mark. A wholesale-only dealer license can apply to new vehicle sales, but only if the sales total less than 25 vehicles per year. Additionally, there is a motorcycle bond. This works for the sale of both new and used motorcycles. Finally, there is a unique bond for all-terrain vehicles. Whether new or used, selling vehicles in this class requires its own bond.

California Auto Dealer Bond Obligee Details

The details for bond obligees are spelled out in the California Code of Regulations. Under Title 13 and Chapter 1, the California DMV has full authority in determining licensing requirements within the state. In terms of a bond obligee, the DMV requires any licensed California motor vehicle dealer to hold a bond and submit pertaining information to the DMV. The address where that information is to be received is as follows:   California Department of Motor Vehicles, Licensing Operations Division Occupational Licensing Branch PO Box 932342 Sacramento, California 94232

What Does a California Auto Dealer Bond Cost?

California has simplified dealer bond requirements. Any dealer, regardless of bond type, is responsible for holding a bond amount of at least $50,000. That is the maximum bond amount that the state will award, although this is not the maximum liability possible. Fortunately, dealerships are not responsible for having $50,000 in cash on hand at all times. Instead, they can purchase the surety bond. Just like any other bond, the purchase price and maturity price are not the same. Depending on financial conditions, the out-of-pocket cost of the bond usually ranges from 1 to 10 percent of the maturity value. That means that, typically, the bond amount will cost the dealership $500 to $5,000.

California Auto Dealer Bond Terms and Expiration Dates

Expiration dates can vary with circumstances. Usually, the bond is designed to run in tandem with the dealership license. The license is good for one year, so bonds typically expire each year. That said, exceptions do exist. It’s also important to highlight that the dealer bonds are continuous. They go into effect as soon as they are certified, which helps prevent coverage gaps. At the end of each term, the bond can be renewed, but because of the continuous coverage, it’s imperative to renew the bond before it expires. Failure to do so will result in compliance failure with the DMV.

Bad Credit Program

Surety bonds can be a risky business for underwriters. In many ways, they function like a loan. The bond provider is depending on your financial stability in order to protect them from paying out more money than they take in and folding. Because of this, credit scores impact the out-of-pocket cost for the bond amount. Read more about how to get a surety bond with bad credit. Our bad credit program aims to help you get the best possible rates and deals, regardless of your credit score. While it will still impact the bottom line, we have specialists who work to help you find an equitable solution to your bond needs.

Get Your California Auto Dealer Bond Today

If you want to get started on your dealer bond today, you can get that process rolling. It starts with a brief online application. The application will provide the details we need to review your situation. We’ll take a look at some important business and financial details, and then you’ll get a quote. Once you receive the free quote, you’ll have instructions on how to agree to the contract and formalize the bond. Once it is formalized, you can send the contract information to the California Department of Motor Vehicles (address listed above). When they have your bond information processed, you’re good to go, at least as far as the dealer bond is concerned.

How Do You Start a Car Dealership in California?

Becoming an auto dealer in California is a bit of a process. Aside from typical business planning, there is a series of specialized forms that has to be completed. Once the forms are done (listed below), there are a series of applications that have to be processed. Each application has its own fee associated with it. When all of the paperwork is processed and approved, you will be able to legally operate a car dealership in California.

State Forms:

  • OL 248A. This is the application checklist for all kinds of California dealers.
  • OL 12. This is the form for an Original Occupational License.
  • OL 21A. This is the other form for an Original Occupational License (Part A).
  • OL 25. This form verifies the surety bond for the dealership.
  • OL 53. This is an authorization to release financial information.
  • OL 124. This is the certificate for your proposed franchise.
  • OL 902. This verifies property use for your dealer’s license.

Application Fees:

  • Original application fee: $175
  • Family Support Program: $1
  • Autobroker: $100
  • Branch Location fee: $70 per branch
  • New Motor Vehicle Board Fee: $300
  • Dealer Plate: $70 per plate
  • Motorcycle Plate: $72 per plate
Note that not all fees apply to all dealerships.

How Do I Claim a Car Dealer Bond?

A claim can be filed by any customer or the state of California. Any claim has to include a compliance failure. The most common reasons for a claim include failure to supply titles with the purchase of a vehicle, failure to report a sale, not paying for a trade-in, failing to pay lenders and failing to meet warranty obligations. Plenty of other claims can be valid. To file the claim, it is issued through the bond claim form. That form is filed with the surety bond company. The surety bond company will investigate and evaluate the claim. The surety company will either validate or invalidate the claim. From there, the claim will be dismissed or paid in full.

Can I Get a Dealer License Without a Dealership?

In short, no. A California auto dealer license is required in order to operate a dealership. More specifically, the state of California requires a dealer license for any sale that isn’t related to personal use. In other words, selling a car without a license is only permissible if the vehicle is titled in your name and used for “personal, household, family or business purposes.” Keeping vehicles on a dealership lot will not constitute business purposes in this regard. Selling a car that is not titled in your name without a dealership license is a crime in California that is often referred to as title-jumping.