What is a Michigan Auto Dealer Bond?
A Michigan auto dealer bond is a form of a surety bond that is required for licensed motor vehicle dealers operating in the state. When obtaining a license as an auto dealer, it is necessary to secure a Michigan auto dealer bond so that customers and the state have some form of safeguard against fraudulent or otherwise bad business practices. A bond is not insurance for the dealer or dealership, but instead protection for financial losses that may be incurred by those doing business with the dealership.
Should the dealership conduct business in a way that results in financial damage to the state or the public, a claim can be brought against a Michigan auto dealer bond. The surety company that provides the bond to the dealer initially pays the claim up to the bond amount. However, the auto dealer is liable for these claims and must repay them to the surety company.
Who Needs a Michigan Auto Dealer Bond?
Auto dealers are individuals or businesses that operate a business for the purpose of selling, purchasing, or exchanging motor vehicles. Regardless of the type of motor vehicle sold, an auto dealer must have a valid license to do so. A Michigan auto dealer bond is required as part of the licensing rules, for both new and used auto dealers.
Michigan Auto Dealer Bond Obligee Details
As with other surety bonds, a Michigan auto dealer bond brings together three distinct parties under a contract. The auto dealer is known as the principal of the bond and is responsible for obtaining it as part of the auto dealer license requirements in the state. The surety company is the business providing the bond, and the state licensing authority, or the organization requiring the bond to be in place, is known as the obligee of the bond.
In Michigan, the obligee of an auto dealer bond is as follows:
Michigan Department of State
Lansing, Michigan 48918
How Much Does a Michigan Auto Dealer Bond Cost?
While a Michigan auto dealer bond represents a required cost to the auto dealer, the price paid for the bond is not typically prohibitively expensive. This is because the surety company providing the bond considered both the total amount of the bond needed and the financial history and credit score of the auto dealer. Throughout Michigan, auto dealers must have a bond of no less than $10,000 in place in order to maintain an auto dealer license. Fortunately, auto dealers pay just a fraction of this bond amount.
The price paid for a Michigan auto dealer bond is a percentage of the total bond, usually ranging from 1 to 10%. Auto dealers with lackluster credit or unstable financial history will pay a higher percentage of the bond total than those who have a healthy financial track record.
How do You Get a Michigan Auto Dealer Bond?
Securing your Michigan auto dealer bond is a simple process. Licensed dealers can submit a short application online, providing the amount of the bond needed and basic information about the business or personal financials. Once the surety company reviews these details, a bond price is quoted. When auto dealers pay for the bond, the surety company finalizes the process by providing the required information and bond forms to the bond obligee. Michigan auto dealer bonds must be renewed each year.