California Car Dealer License Guide

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Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your California auto dealer bond needs. Learn how to get a California car dealer license, and contact us today to request a quote on the bond you need.

What Are the Different Types of California Auto Dealer Licenses?

In California, if you sell even one car for profit, the law requires you to have an auto dealer license. You can get either a retail or a wholesale auto dealer license that permits you to sell used vehicles in California. While both retail and wholesale dealers may sell to dealers or at auctions, only retail dealers are allowed to sell to the public. The other main difference between the two types of licenses is that retailers have to maintain an office and car lot, but wholesalers do not.

What Are the Steps in the Licensing Process?

California requires successful completion of a pre-licensing education and a passing score on the DMV dealer licensing exam administered by the DMV Occupational Licensing office. There are several other things you’ll also have to do before applying for your California auto dealer license, such as:

  • Selecting a location
  • Forming a business entity
  • Getting a local business license or tax certificate if required in your area
  • Getting a Seller’s Permit from the California Department of Tax and Fee Administration (CDTFA)
  • Establishing a bank account for the business

Steps specific to the licensing process include:

  • Purchasing a California auto dealer bond ($50,000 for retailers; $10,000 for wholesalers and dealers selling only motorcycles and ATVs).
  • Getting fingerprinted via “Live Scan.”
  • Completing the Used Dealer Application.
  • Submitting the completed application and all supporting documents to the nearest DMV Occupational Licensing Office.
  • Scheduling a location inspection.

Once your location has passed inspection, you’ll receive a temporary dealer license.

Why is a California Auto Dealer Bond Required?

California, like nearly other states, rely on an auto dealer surety bond to ensure that licensed auto dealers comply with all applicable state laws and regulations. A California auto dealer bond also:

  • Guarantees the payment of taxes and any fines or fees owed to the state,
  • Indemnifies the state against any liability for damages incurred by consumers due to the unlawful actions of a licensed auto dealer, and
  • Ensures that funds will be available for compensating the injured party in such instances.
  • To provide a source of funds for paying claims for damages resulting from a licensee’s violations of the terms of the surety bond agreement

How Are California Auto Dealer Bond Claims Paid?

There are three parties to a California auto dealer bond, which is a legally binding contract:

  • The “obligee” (the party requiring the bond) is the California Department of Motor Vehicles.
  • The “principal” (the party purchasing the bond and legally obligated to pay all valid claims) is the auto dealer.
  • The “surety” is the party guaranteeing the bond.

One thing that many don’t understand about surety bonds is that they represent a surety’s commitment to extending credit to a principal by paying valid claims initially on behalf of the principal. This ensures that claimants are compensated quickly. But the legal responsibility for claims remains with the principal, who must then repay the surety.

How Much Does a California Auto Dealer Bond Cost?

The premium rate for a California auto dealer bond is based on the underwriters’ assessment of how risky it is for the surety to pay claims on behalf of the principal and wait to be repaid. The greater the risk, the higher the premium rate.

The primary factor the surety will consider is the principal’s personal credit score. With a high credit score, the premium rate for a California auto dealer bond could be as low as one percent; that would make the annual premium for a retailer’s $50,000 auto dealer bond only $500.

Our surety bond professionals will get you the California auto dealer bond you need at a competitive rate.