Getting a car dealer license and auto dealer bonds in The Golden State

Published: Oct 7, 2013
Across the U.S., auto sales are finally picking up, so once again it’s a great time to be an auto dealer. However, if you want to establish your own car dealership you need to acquaint yourself with the licensing process and the paperwork it involves. While it might seem daunting, it’s actually a straightforward process that varies slightly from state to state. Let’s examine how you can get your license and the all-important auto dealer bond in the state of California.


Ben McLeod / Foter / CC BY-NC-SA

First steps

It’s always hardest to figure out where to begin. So let’s start out by distinguishing the kind of car dealer licenses you can get in California. You can be a new car dealer, meaning that you are franchised by an automotive brand and follow its rule of operation. With a new car dealer license, you are allowed to sell used vehicles as well. Or you can obtain another type of license which only allows you to sell used vehicles.

Should you choose the first option, the California section of the DMV has made your life easier by issuing the New Dealer Application Checklist. It’s a convenient way to gather all the necessary information, after which you can download the applications forms and begin your licensing journey. As for used car dealers, you need to go through a mandatory training program, followed by a test, before you are allowed to file your license application. And don’t fret over it; there’s a checklist for you too.

Regardless of the kind of license you wish to obtain, you will also have to go through a criminal background check. If you have a record and are unsure if you will be granted the license, there’s an abbreviated application process for which you need to pay a $175 fee. You will know if you can get the license ahead of setting up all the other important documentations, such as business licenses and auto dealer bonds.

Getting an auto dealer bond

Now onto the next part of the application process which many people find confusing. You might not know what an auto dealer bond is at all. Auto dealer bonds, also known as DMV bonds or MVD bonds, are a type of surety bonds that protect your future customers from fraud and unethical business practices. It also makes sure you will operate in accordance with state regulations. In case of a claim against you, the surety bonds company you purchased the bond from will cover the financial losses. You will then have a legal responsibility to reimburse the surety.


machbel / Foter / CC BY-NC-SA

The state of California requires you to post a $50,000 auto dealer bond for a regular car dealership. Wholesalers, meaning businesses who sell 25 vehicles or less per year, only need a $10,000 bond. But don’t worry, that doesn’t mean that you have to pay the whole amount. The price of the auto dealer bond is a certain percentage of the total amount of the bond. And, unlike that of other states, California’s auto dealer bond is a continuous one, so you don’t need a Continuation certificate each year.

Auto dealer bond costs

How much an auto dealer bond in California will cost you depends on various factors. Surety bonds companies will look into things like the size and location of your business and your personal credit score and determine the percentage of the bond you will have to pay. Your credit score is important because surety bonds companies assume a 0% loss ratio when underwriting your bond. The good news is that online surety bonds agencies work with a wide variety of partners, so you can get a good deal. You can submit everything online and get quotes and approval fairly quickly.

What if you have bad credit score? To be fair, California is a bit more stringent towards granting an auto dealer bond to people with bad credit, but it’s definitely not impossible. People with no previous credit history are also considered high-risk applicants. Luckily, Lance Surety Bonds has a bad credit bonding program that will let you find the most suitable deal.

Let’s hope you now have a clearer idea about the steps you need to undertake before obtaining a car dealer license and an auto dealer bond. Good luck with your operation!

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.