Michigan Auto Dealer Bonds

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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 your Michigan auto dealer bond needs.

What Are They?

Michigan auto dealer bonds, formally known as Michigan uniform vehicle dealer surety bonds, are a type of license and permit bond. They serve several important purposes:

  • They obligate dealers to do business in compliance with all applicable state laws and ethical standards governing the sale of new and/or used vehicles in Michigan.
  • They ensure the payment of taxes and fees owed to the state by licensed auto dealers.
  • They protect the state and consumers doing business with licensed auto dealers in Michigan against financial loss stemming from a dealer’s unlawful or unethical sales practices.
  • They provide a source of funds for paying valid claims for damages.

Who Needs Them?

Any applicant for a new or renewal Class A (new vehicle), B (used vehicle), or D (broker/auctioneer) motor vehicle dealer license issued by the Michigan Secretary of State must provide a $10,000 Michigan auto dealer bond. A Michigan auto dealer license is good for one year. The Michigan auto dealer bond must be continuous, renewed before December 31 each year, at the same time the dealer’s license is renewed.

Speak with a Surety Bond Professionals agent today to discuss your bonding needs.

How Do They Work?

There are three parties to the surety bond agreement underlying a Michigan auto dealer bond. In the language of surety bonds, these are:

  • The obligee—the Michigan Secretary of State, which is the party requiring the bond.
  • The principal—the auto dealer required to purchase the bond and responsible for paying valid claims.
  • The surety—the bonding company underwriting and approving the bond.

Common violations resulting in a claim against the bond include knowingly selling a defective vehicle, falsifying odometer readings, and failing to remit taxes and fees to the state. When the surety receives a claim against a Michigan auto dealer bond, there will be an investigation to confirm that the claim is valid. The surety may even attempt to negotiate an amicable settlement, but that’s not always possible.

There’s an interesting twist at this point. Instead of the principal simply mailing a check to the claimant, the surety typically pays the claim on behalf of the principal. Even though the legal obligation to pay valid claims rests with the principal, the surety extends credit to the principal by paying the claim directly, thus creating a debt that the principal is then required to repay. It’s an arrangement that ensures prompt payment of the claim and gives the principal some time to come up with the necessary funds.

What Do They Cost?

The annual premium for a Michigan auto dealer bond is a small percentage of the required $10,000 bond amount (the bond’s “penal sum”). The surety determines what that percentage will be based largely on the principal’s credit score, which is a good indication of the risk associated with extending credit to the principal.

The higher the credit score, the less risk to the surety, and the lower the premium rate.  A principal with good credit typically pays a premium rate in the range of 1-2%. While a principal with lesser credit should still be able to get bonded, the premium rate will be higher because of the greater risk to the surety.

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