5 Reasons Why You Need Auto Dealer Bonds

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Until you have an auto dealer bond, you’re not legally allowed to sell most kinds of motorized vehicles. All states require individuals who annually sell more than a few cars (or boats, motorcycles, ATVs, etc) to have a license. Obtaining a bond that meets the state’s particular requirements is one of the licensing requirements. Read on to learn all you need to know about auto dealer surety bonds, including the reasons they’re good for your business.

What is an Auto Dealer Bond?

Essentially, it’s an agreement that you will take financial responsibility if your auto dealership is found to violate any state laws. If a dealership is found in violation, for something like rolling back the odometer, for example, the state will levy a fine in order to compensate the customer who has been wronged. It’s the dealership’s responsibility to pay this fine, but if they don’t the bond will cover it, up to the total amount of the bond. Later, the surety company will try and collect the fine from the auto dealer, but in the meantime, the customer doesn’t have to wait for compensation or justice. States put the bond requirement in place to hold dealerships accountable and protect the interests of consumers. 

How Much Does a Bond Cost?

That depends on a few factors: First, every state sets its own auto dealer licensing requirements, including the size of the required bond, so where you intend to operate largely determines how much you pay. The surety company that issues the bond also makes a difference because different companies charge different premiums (typically 1%-3% of the bond total). Finally, your credit score determines your borrowing risk, and if your score is low, you may have to pay more to obtain a bond. Given all those factors, bond premiums can vary widely between one auto dealer and another. 

Why Get an Auto Dealer Bond?

State laws require auto dealers to carry bonds so that car buyers don’t get manipulated or exploited. The public is safer as a result, but the auto dealer actually benefits too. Here are five reasons auto dealers should make bonding a priority:

  1. To Get a License Faster – You can’t open your auto dealership without a license, and you can’t get a license without a bond. There is a strong incentive to obtain a bond as early as possible so you don’t have to wait longer than necessary to open for business. Working with a company that makes applying for a bond easy like Viking Bond Service helps you get approved and move on to other things ASAP. 
  2. To Keep a License – With a few rare exceptions, it’s illegal to operate an auto dealership of any kind without the necessary state license. This credential is essential for the sustainability of your business because without it it’s impossible to bring in any revenue. Premiums on auto dealer surety bonds must be paid annually to keep your license in good standing. 
  3. To Avoid Legal Consequences – If you’re caught operating without a license or a, bond the penalties are more than just a slap on the wrist. Depending on the state you are in, the consequences can include a hefty fine, being barred from ever getting a license again, or possibly even jail time. Any of these could be disastrous for your business, underscoring the importance of a bond. 
  4. To Build Trust – Purchasing a vehicle is a big investment in something people use every day. Understandably, consumers want to trust that they’re working with reputable and trustworthy auto dealers. A bond helps build that trust by making a promise to car buyers that if anything is not above board, they can seek out restitution. Some savvy auto dealers even emphasize the fact that they are bonded as part of their marketing efforts. 
  5. To Encourage Responsibility – Bonds actually encourage auto dealers to be more diligent about their business. They have to save for annual bond premiums and keep up with evolving licensing requirements. More importantly, they have to stay in good standing with every customer they serve or risk a claim against the motor dealer bond, damaging the dealership’s reputation. 




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