California Auto Dealer Bond: A Comprehensive Guide

This guide provides a comprehensive overview of the California Auto Dealer Bond, a crucial requirement for anyone looking to operate as a vehicle dealer in the state.

What is a Surety Bond?

A surety bond is a three-party agreement that guarantees a principal (in this case, the auto dealer) will fulfill its obligations according to the terms of a contract or law. It involves the principal, the obligee (the entity requiring the bond, here, the California Department of Motor Vehicles), and the surety (the bonding company that guarantees payment if the principal defaults). Think of it as a financial guarantee that protects the public from potential harm caused by the dealer's actions. For a more detailed explanation, visit our page on what is a surety bond?

Why is it Needed? (Governing Law)

The California Auto Dealer Bond is mandated by the California Vehicle Code, Division 5, Chapter 3, Article 1, Section 11710. This law requires dealers and remanufacturers to obtain and maintain a surety bond as a prerequisite for licensure. The bond serves as a financial safety net, ensuring compliance with state regulations and protecting consumers from fraudulent or unethical business practices. It assures the public that if a dealer violates the law or engages in misconduct, funds will be available to compensate affected parties, up to the bond amount.

Who Requires this Bond?

This bond is required for all individuals and businesses seeking to obtain or renew a license as a:

• New Vehicle Dealer: Those selling new cars, trucks, motorcycles, or other vehicles.
• Used Vehicle Dealer: Those selling pre-owned vehicles.
• Remanufacturer: Businesses that rebuild and restore used vehicles.
• Wholesale Vehicle Dealer: Dealers who sell vehicles to other dealers.
• Motorcycle Dealer: Dealers who exclusively sell motorcycles.
• ATV Dealer: Dealers who exclusively sell all-terrain vehicles.

How Much is the Bond?

The required bond amount varies depending on the type of dealership:

• $50,000: This is the standard bond amount for most new and used vehicle dealers and remanufacturers.
• $10,000: This lower bond amount applies specifically to dealers who exclusively sell motorcycles or all-terrain vehicles.

The premium you pay for the bond is a percentage of the total bond amount and depends on various factors, including your credit score, business history, and financial stability. Learn more about surety bond cost on our website.

What are the Penalties for Operating Without This Bond?

Operating as a vehicle dealer in California without the required surety bond is illegal and can result in severe penalties. These may include:

• License Denial or Revocation: The DMV can refuse to issue or revoke a dealer's license if they are not in compliance with bonding requirements.
• Civil Penalties: Fines and other financial penalties may be imposed for operating without a bond.
• Legal Action: Consumers who are harmed by an unlicensed dealer may pursue legal action to recover damages.
• Criminal Charges: In some cases, operating without a license or engaging in fraudulent activities can lead to criminal charges.

The Renewal Process

Renewing your California Auto Dealer Bond is a critical step in maintaining your license and ensuring uninterrupted business operations. Here's a more detailed breakdown of the process:

• Proactive Communication: Ideally, your surety provider will reach out to you in advance of your bond's expiration date, often 30-60 days prior. However, it's your responsibility to be aware of your bond's expiration date and initiate the renewal process, even if you haven't heard from your surety company. Don't wait until the last minute!
• Review and Update Information: Your surety provider will likely request updated information about your dealership. This may include:
  • Business Information: Verify your business name, address, contact details, and ownership structure are current.
  • Financial Information: Depending on your surety provider and their requirements, they may ask for updated financial statements or other documentation to assess your business's financial health. This is less common for renewals than for initial bond applications but can still occur.
  • Licensing Information: Confirm your dealer's license number and ensure it's in good standing with the DMV.
  • Claims History: Disclose any claims that have been filed against your bond during the previous term. This is crucial, as any claims paid out by the surety will affect your future premiums.
  • Changes in Ownership or Management: Report any changes in ownership, management, or key personnel within your dealership.
• Premium Payment: Once the surety provider has reviewed your information, they will calculate your renewal premium. This premium is based on several factors, including your credit score, business history, the bond amount, and any claims against your bond. Promptly pay your renewal premium to avoid any lapse in coverage. Payment options may vary by surety provider.
• Bond Execution and Filing: After you've paid the premium, the surety company will issue a new bond certificate. They will typically file this new bond directly with the California DMV on your behalf. It's a good practice to confirm with your surety provider that the bond has been successfully filed and received by the DMV. You should also retain a copy of the renewed bond certificate for your records.
• Confirmation and Record Keeping: Once the DMV has accepted the new bond, your license renewal process can proceed smoothly. Maintain thorough records of your bond, including the original bond certificate, renewal certificates, payment receipts, and any correspondence with your surety provider. These records are essential in case of any questions or issues regarding your bond coverage.
• Addressing Potential Issues: If there have been claims against your bond or if your financial situation has changed, your surety provider may require additional information or collateral. Be prepared to address any concerns promptly and provide the necessary documentation to facilitate the renewal process. If you have questions about the renewal process, contact your surety provider directly.
• Timely Action is Key: Renewing your bond on time is crucial. A lapse in coverage can lead to license suspension or revocation, requiring you to go through the entire licensing process again, which can be costly and time-consuming. Set reminders and be proactive in the renewal process to ensure continuous coverage.

Sources:

• California Vehicle Code, Division 5, Chapter 3, Article 1, Section 11710: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=VEH&sectionNum=11710&article=1&chapter=3&division=5&title=
• California Department of Motor Vehicles (DMV): https://www.dmv.ca.gov/

Need an auto dealer bond? Visit our page dedicated to auto dealer bonds for more information and to get a quote.