Starting an Auto Dealership Business in California: Easier with this List

Opening a new auto dealership business can be a cumbersome and nerve-wrecking process if you are starting from scratch. However, there are tips that can make the experience easier and smoother. Here is an essential overview of what you need to do if you are based in the state of California and you are planning to start a new auto dealership business.

The most important part of the process, of course, is obtaining all the state-required permissions and licenses, which would ensure you will start your auto dealership on safe ground and would guarantee your compliance with state regulations. You can find an extensive overview of the state application requirements at the website of the California Department of Motor Vehicles. There is even a Vehicle Dealer Handbook, which will be very useful for you in this process – so do note this link for future reference.

auto dealership in CA
Storm Crypt / Travel Photos / CC BY-NC-ND

The Requirements and the Process

The State of California requires that you get a dealer license before you start your operations, either for selling new or old cars, depending on your business focus. A background investigation will be conducted to check whether you have any criminal convictions. If you fail to inform the Department of any convictions you might have, your dealer license is likely to be refused.

You will have to pay different fees as well, including a non-refundable original application fee and an auto-broker fee, among others. They are all listed and explained in the Handbook under the Fee Schedule.

The next step will be to fill in all the necessary forms, which are available at the California Department of Motor Vehicles’ website. These include New or Used Dealer Application Checklist, Application for Original Occupational License, Surety Bond, Certificate of Proposed Franchise, Application for Occupational License Personal History Questionnaire, and a request for Live Scan Clearance, among others. The full list of applications is clearly provided in the Handbook, so the only thing you have to do is to be thorough and meticulous in filling them out.

Surety Bond: What and how?

Most of the application forms and the requirements of the California Department of Motor Vehicles (DMV) are rather straightforward. One of the basic requirements, however, is obtaining a surety bond, which needs further clarification, especially if you have not encountered it beforehand. The concept of such a bond can be a bit tricky to grasp initially, as it is a special kind of guarantee for your clients.

what is surety bond
Learn what is a surety bond and why you need it [Video]
Contrary to popular misconception, this is not a safety scheme for you against people taking you to court – it is a safety net for your potential clients and the state, which guarantees that you will follow the state regulations in your business.  You have to obtain such a bond through a surety bond provider by paying a premium for the guarantee provided. The surety bond company acts as a buffer between you and your client. This means that if you fail to abide by the DMV laws and regulations, the surety guarantees to satisfy these obligations in favor of your client and the state. Thus, the surety bond is, in a way, a stamp of approval and is a credit of trust given to your company.

To get an auto dealer bond, you will have to apply with a surety bond agency, which will review your credit and financial situation. It is possible to get a bond even with a bad credit, but only a few surety bond agencies are able to process this. In general, the process for obtaining the surety bonds is made easier through the use of online application forms, which sometimes can even be approved instantaneously. You can also get a quote online, so that you get the exact amount to be paid for the surety bond.

Furthermore, there are different auto dealer bonds that you can obtain, depending on the needs of your auto dealership business. You might need a retail dealer or a wholesale dealer bond. You can find more information on our California retail dealer bond page. Your surety bond agency will provide you with the necessary information on the best option for your business.