What is a California Auto Dealer Bond?
Car dealerships operating in California are required to hold an auto dealer license. As part of the pre-licensing requirements, a California auto dealer bond is necessary. An auto dealer bond is a type of surety bond that helps protect car buyers from illegal business practices. If a customer of a car dealership incurs financial losses or damages because an auto dealership does not follow state or federal laws, a claim can be made against the dealership’s bond.
A California auto dealer bond involves three parties: the licensed auto dealership, known as the principal, the California Department of Motor Vehicles, known as the obligee, and the surety company providing the auto dealer bond.
Types of California Auto Dealer Bonds
Several different types of California auto dealer bonds exist, with requirements to secure a specific type of bond based on business activities of the dealer. Licensed auto dealers may fall under one of the following categories which dictates the type and amount of bond needed:
- Retail auto dealer of new vehicles
- Retail auto dealer of used vehicles
- Wholesale only auto dealer (less than 25 vehicles per year)
- Motorcycle dealer, new or used
- All-terrain vehicle dealer, new or used
California Auto Dealer Bond Obligee Details
Under the California Code of Regulations, Title 13, Chapter 1, the California Department of Motor Vehicles has the authority to dictate licensing requirements for auto dealers operating in the state.
These licensing requirements include securing an auto dealer bond. Licensed California auto dealers submit bond information to the California Department of Motor Vehicles, the obligee of the surety bond, at the address below:
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?
Auto dealer bonds in California are priced as a percentage of the total bond amount required by the state licensing authority. California requires an auto dealer bond of no less than $50,000, but licensed dealerships only pay a fraction of this amount. The cost ranges from 1 to 10%, depending on your credit history and other factors you provide on your bond application.
A California auto dealer bond will cost more if you have less than good credit or the financial strength of your dealership is lacking. These factors play a role in the percentage you pay because a surety bond is a form of extended credit. When a claim is made, the surety company will compensate for financial losses up to the bond amount. However, you are required to repay this amount to the surety. Because of this structure, a healthy credit score is necessary to obtain a low-rate California auto dealer bond.
How Do I Get a California Auto Dealer Bond?
You can start the process of securing a California auto dealer bond by submitting a brief application online. After your application is reviewed, you will receive a quote and instructions for completing the process.
California Auto Dealer Bond Terms and Expiration Dates
California auto dealer bonds are continuous, meaning they are effective as of the date listed on the new bond certificate. Typically, auto dealer bonds in California have a term that runs concurrent with the term of the auto dealer’s license, or one year. Renewal of an auto dealer bond takes place at the end of the term.