What Types of Dealers Need Surety Bonds & How To Get the Best Rate

Dealerships, regardless of what kind of vehicle they sell, are required by most states to have surety bonds in place to protect consumers from unlawful or unethical practices. While each state has different coverage limit requirements, it’s important to understand what kinds of dealers must carry this coverage and for those looking to add this for the first time, things you can do to get a more favorable rate.

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Surety bonds are not just for the local new or used car dealership. As we’ll list below, there are many different types of ‘dealerships’ in this space and all of them will benefit from this protection.

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Types of Dealerships That Need Surety Bonds:

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• New Car Dealerships - If you are a franchise dealer, chances are that your OEM has this as a requirement for licensing. As these bonds are to protect customers from fraud and other unethical practices, no new car dealer can afford to NOT have this in place if they want to maintain good standing with their OEM. Given the high cost of these vehicles and the high community visibility of franchise dealers, not having a strong surety bond in place can spell disaster.

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• Used Car Dealerships - Even though there is no OEM looking over their shoulder, the independent dealers need surety bonds as well. There are still the same risks to the consumer with things like poor paperwork execution for financing, data breach, etc and a surety bond can help make things right for the  customer. Used car dealerships tend to be viewed less favorably in the community than franchise stores which is another reason to make it clear to the local car shoppers that they are protected by a surety bond to add to their peace of mind.

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• Wholesale Car Dealers - Even though most wholesalers may not have a big lot with inventory or the standard retail dealership presence in the market, they still buy and sell cars to the public and to other dealers. The same goes here…surety bonds protect all parties doing business with the wholesaler. As a smaller business, it adds a layer of protection that helps their business grow.

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• Auto Auctions - Auctions will send hundreds and sometimes thousands of cars through their lanes each week and those transactions involve paperwork and required disclosures. Dealers will send buyers all over the country to bid on cars and if there is a titled issue or something else that impacts the dealer once the car arrives, having a surety bond in place can guard against financial problems.

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• Motorcycle Dealers - More motorcycle dealers are opening nationwide and even though they don’t sell cars (they may sell some trade-ins on the side), they are not immune to the type of issues that a surety bond will cover in case of unethical practices.

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• RV Dealers - See above (only think MUCH higher financial risk with vehicles that can cost over 100K).

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To get a better rate on your surety bond, it’s similar to shopping for personal auto insurance - there are things you can do to increase the chance of a more favorable rate to help save your dealership money.

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Here are some general tips to saving on the cost of your surety bond:

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• Be Sure to Shop Around - Never settle for the first quote you get. Reach out to at least 3-4 different insurers as they all will likely have different rates. It’s the same with any insurance…shopping around always saves you money.

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• Find an Expert in Surety Bonds - Look for an experienced agent who understands the dealership market and how surety bonds work for dealers. Chances are if they work with others in your market, they will be ready with a favorable rate.

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• Keep Your Credit Score High - You wouldn’t think this matters but it does, just the same as it impacts your personal auto insurance. A lower score may signal a higher risk to the insurer for the bond so know the score before applying.

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• Consider Bundling - We all save money when we bundle home-auto-life on a personal level and it’s not much different in the commercial insurance market either. Ask about discounts from having all of your commercial insurance needs together in one plan.

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• Keep a Clean Business Record - Your surety bond insurer will not want to offer coverage for a business that has prior issues with proven fraud or other suspect activities that are made common knowledge in the community. 

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• No Lapsed Renewals - If you have an existing surety bond, don’t let it expire without immediate or automatic renewal. Like our health or auto insurance, if a potential new insurance provider sees there was a period of time without coverage, it will be suspicious and result in a higher quote to reduce their own risk when offering a surety bond. 

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DealerSure can help you get a better rate for you surety bond if you already have one in place or, as a new dealership, we can help you get the best rate with the best coverage limits to protect you and your customers. You can find us here for a quick quote.