How much does an auto dealer bond cost in Texas?
Auto dealer surety bonds (also called motor vehicle dealer bonds) are mandated by the Texas Department of Motor Vehicles (DMV) as part of the licensing requirements for dealerships to conduct business in the state. The bonds are a three-party agreement between the dealer (the Principal), the underwriter (surety), and the state of Texas (Obligee).
The total bond amount, as set by the Obligee, is $25,000. The surety company determines your premium rate, which is the percentage of the total bond amount you pay as the premium. Premium rates for Texas auto dealer bonds typically cost between 1% and 3% of the total bond amount.
During the application process, the surety company evaluates your personal credit, financial statements, industry experience, and licensing history. Applicants with good credit generally receive the lowest rates, however, bad credit will not prevent you from securing a Texas auto dealer bond. EZSurety still offers competitive rates to individuals with low credit scores or other financial issues.
EZ Surety has issued Texas motor vehicle dealer bonds for premiums as low as $350.
Why are auto dealer bonds important in Texas?
Texas auto dealer bonds provide protection for customers, creditors, and the state government. When a Texas motor vehicle dealer posts a surety bond, they provide a guarantee to the Texas DMV that they will conduct business in compliance with the conditions listed in the Texas Transportation Code.
If the auto dealer fails to comply with the Transportation Code, the surety company will pay out financial losses to damaged parties up to the full bond amount. The auto dealer is liable to reimburse the surety for any damages paid under the bond.
How to get your auto dealer license in Texas
Auto dealers that buy, sell, lease, display, or deal three or more motor vehicles a year in Texas must post a motor vehicle dealer bond to be eligible for a Texas Dealer license.
After posting the surety bond, each dealer must obtain a general distinguishing number (GDN) from the Motor Vehicle Division. GDN licenses, also called Independent Dealer Licenses are issued for different categories based on the type of vehicles being sold.
Independent Dealer Licenses allow a dealer to buy, sell, or exchange the particular type of vehicle for which it is issued. When you apply for a license, you must submit a separate application for each license type. The following independent dealers license require a surety bond:
- Independent Motor Vehicle License: This license allows a dealer to buy, sell, or exchange any type of used cars, trucks, or motor homes.
- Independent Motorcycle License: This license allows a dealer to buy, sell, or exchange used motorcycles, motor scooters, or ATVs.
- Wholesale Dealer License: This license does not allow for retail sales of motor vehicles. A wholesale dealer may only sell and exchange vehicles with licensed dealers including all aforementioned vehicles as well as travel trailers and semi-trailers.
- Wholesale Motor Vehicle Auction License: This license allows dealers to sell vehicles to licensed dealers by BID ONLY, and must be done at a permanent auction location. An auction GDN is for the sole license holder, and may not be available to employees for sales or auctions. Only one GDN is allowed per auction location, but a regular motor vehicle GDN can be issued for the same location as well.
- Independent Mobility Motor Vehicle Dealer License: This license allows a dealer to sell new mobility motor vehicles (a motor vehicle designed to transport a person with a disability).
Along with the $25,000 surety bond, dealers applying for an independent dealers license must provide the following information to complete the Texas Department of Motor Vehicles eLICENSING process:
- Business details (DBAs, physical and mailing address)
- Certificate of Incorporation
- Information about the owners including proof of owner identity, criminal history, and military service
- Details about place of business including proposed location, business hours, signage, and display areas
- Any previous Texas licenses
- Proof of occupancy and location of place of business
- Any prior Texas Occupations Code violations
- Assumed Name Certificate
Auto dealers must pay a $700 fee for each license category included in the application. Independent dealer licenses are valid for a two-year period and require a $400 fee for renewal. If a dealer fails to pay the renewal fee on time, a $200 late fee will apply if the license is renewed within 30 days of expiration. An additional $200 fee will be required if renewed more than 30 days after expiration.
Franchise Dealers License
This license is required for anyone wishing to sell new vehicles. Franchise dealers are also required to have a General Distinguishing number. With this license, dealers are able to buy, sell, service, and exchange new motor vehicles, motorcycles, or towable RVs.
Franchise dealer licenses cover either a specific person or business, but an additional license is required for each showroom. Dealers may use the same GDN for multiple showrooms, as long as they are in the same city limits. Franchise dealer licenses do not require a surety bond.
For more information on Franchise Licenses, read here.