Used Car Dealer Bonds Get Your Dealership Revved Up

Though it may seem like a different used car dealership pops up in town every time you turn around, starting such a business is actually a fairly involved process designed to ensure quality goods and protect the rights of consumers. Used car retailers may technically operate out of an existing home or office location, but the paperwork in doing so far exceeds that of a business operating at an actual dealership.

The most successful used car dealers have extensive contacts that allow them to acquire high quality vehicles well below the wholesale price. One of the first decisions to make when starting a dealership is choosing a legal business structure, usually by forming a Corporation or Limited Liability Company. While there are subtle differences between the two, both provide credibility and personal asset protection to the business owner.

After securing sufficient start-up capital and a place of business, the next step is to file a business license and deal with bonding. Also known as a DMV bond, these auto dealer bonds guarantee to the state that a dealership will operate in accordance with all applicable state ordinances. Depending on the state you are operating in, DMV bond requirements will run from $5,000 to $100,000. The amount of a bond required for your dealership will be based upon your credit score, the number of vehicles sold each year and other factors.

In a business like a used auto dealership, a bond serves several purposes. First, it guarantees to local, state and federal governments that the business will follow proper business protocol and will comply with any tax obligations. Even more so, though, the bond gives credibility to the dealership and allows consumers to feel confident entering into a business deal with the dealer. The bond takes effect if the dealer is found to be misrepresenting its vehicles or using unethical business practices. In this case the consumer would be able to file a claim against the business with the surety to be reimbursed for whatever losses they had incurred as a result of the dealers actions.

Most of what is required to operate a dealership is simply good business sense; however, a certain amount of automotive know-how is essential in identifying quality deals instead of junkers. Contact the National Independent Automobile Dealers Association, which offers educational opportunities and training resources to its members, or call your state’s auto dealer association for more localized information. 

Eric is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog. He has held a range of different roles within the surety industry, from agent assistant to bond issuer, which gives him a unique insider perspective on surety related topics.

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