Surety Bonds for Car Dealerships - What Are They & Why It’s Important

Car dealers who are looking to beef up their commercial insurance protection could overlook one policy that could potentially provide cover from financial issues…surety bonds.

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Think of surety bonds as your dealership operation’s big safety net. At its core, surety bonds are a three-party agreement that provides financial assurance and protection to customers, vendors/suppliers, and the government if your store fails to meet certain obligations. 

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In this circumstance you, the dealer, are the principal, the entity (or entities) requiring the bond (like a customer or governmental agency) is the obligee, and the bonding company is the surety.

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Does Your Dealership REALLY Need This?

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Generally speaking, an auto dealer bond is necessary to obtain a license for anyone who intends to sell cars or as a significant source of revenue. An auto dealer license cannot be obtained without the bond, and the license will be revoked if the bond coverage lapses. 

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Operating without a license may result in severe consequences, including the loss of the business. Therefore, anyone needing an auto dealer bond should do it right away.

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So yes, as a dealership, if you need a license to sell cars, a surety bond is a must. 

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It does seem a bit complicated but taking a closer look at scenarios where the surety bond will protect your dealership will put this into better focus.

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Here are 5 reasons why your dealership should consider adding a surety bond to your commercial insurance plan - 

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1. Fosters Trust & Credibility - Imagine a customer who comes in looking for a car and they are ready to sign all the paperwork and finalize the deal. But they have reservations due to rumors of your store failing to deliver cars as promised. This is where the surety bond can help a customer feel confident that you’re committed to your obligations. It demonstrates professionalism and boosts  credibility, helping your customers feel better about doing business with you.

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2. Better Customer Protection - Speaking of customer trust, the surety bond can be there to help a customer with recourse in case something goes wrong with the car. A good example is a customer buying a lemon vehicle and if your dealership fails to fix the issue for whatever reason, they can file a claim against the bond to get compensation. 

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3. Compliance is Addressed - Surety bonds can help navigate a tricky regulatory landscape in the automotive market. There are state and federal regulations to consider and each violation can lead to substantial fines. By having the right surety bond in place, you’re ensuring that you’re compliant with these regulations which helps you always keep your dealership on the right side of the law. 

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4. Strengthens Supplier Relationships - No dealership operates in isolation and your vendors help everything run well from parts to car inventory. Some of these suppliers, though, may hesitate working with you without a surety bond in place. It demonstrates to them your commitment to fulfilling your contractual obligations and helps build strong relationships with companies you will come to rely on.

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5. Weathering Financial Loss - Even the most efficiently operated dealerships can encounter unforeseen financial challenges. Anything from a sudden economic downturn (pandemics, anyone?) to unexpected supply issues. 

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Surety bonds can help serve as a financial cushion if you’re unable to fulfill your obligations due to unexpected economic stress. The bonding company will step in to cover the costs up to the bond’s limit, preventing your business from risk of failure and providing a lifeline to recovery.

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If your dealership is considering a surety bond, check here to see how we here at DealerSure can help and let us walk you through everything our policies offer and even compare to what you may have in place now and see how we can beat it. And we’re betting we can.