Surety Bonds in California: A Practical Guide for Automotive Dealers

What is a dealer surety bond?

A dealer surety bond is a three-party agreement between your dealership (the principal), a surety company, and the State of California (the obligee). By posting the bond, you promise to conduct business lawfully and avoid actions that cause monetary harm—such as title or lien issues. If a covered loss occurs, an eligible claimant may be paid by the surety up to the penal sum of the bond, and you must reimburse the surety for any payout.

Who needs a bond—and how much?

• Retail new or used auto dealers: $50,000 bond.
• Motorcycle-only and ATV-only dealers: $10,000 bond.
• Wholesale-only dealers (fewer than 25 vehicles/year): $10,000 bond.
• Wholesale-only dealers (25+ vehicles/year): $50,000 bond.

If you add an autobroker endorsement to your dealer license, the endorsement doesn’t change the bond amount by itself. Your bond amount follows the underlying license type and volume thresholds.

“Admitted” surety & DMV bond forms

California requires the bond to be issued by an admitted surety insurer (one that is authorized to do business in the state). Dealers evidence the $50,000 bond using California DMV bond forms (commonly referenced as OL 25 for the standard dealer bond). Make sure the bond reflects your exact legal entity name as it appears on your license application and other DMV records.

Can I post a cash/CD deposit instead?

Yes. Instead of a surety bond, California allows a deposit in the same amount—often a certificate of deposit assigned to the DMV. This option can be useful if you prefer to tie up funds rather than pay an annual premium. Most dealers choose a bond to preserve working capital and keep liquidity available for inventory, payroll, and flooring needs.

What the bond covers (and doesn’t)

The bond functions as a financial backstop for statutory violations that result in monetary loss. Common claim scenarios include:

• Failure to deliver title or register a vehicle properly.
• Failure to pay off a customer’s trade-in lien.
• Unpaid fees or taxes that impair the buyer’s title.
• Fraud or misrepresentation in advertising or sales documents.

Remember: this is not a warranty or general liability policy. Losses unrelated to covered statutory violations do not trigger the bond.

How much the bond costs

The bond amount (e.g., $50,000) is not your cost. You pay an annual premium that is a small percentage of the bond amount. Pricing depends on underwriting factors such as personal and business credit, financial strength, experience, and claims history. Well-qualified dealers often see premiums starting around a few hundred dollars per year, while higher-risk profiles pay more.

Practical ways to lower your premium

• Strengthen credit: Your FICO score is a major pricing driver.
• Provide complete financials: Clean, current statements can unlock better rates.
• Show operational discipline: Error-free titles, timely lien payoffs, and clean audits signal lower risk.
• Use a specialized surety broker: Access to multiple admitted markets often yields better terms.

How to get bonded: step-by-step

1. Confirm your required amount. Most retail dealers need $50,000; motorcycle/ATV-only and wholesale-only (under 25 units) are $10,000; wholesale 25+ units requires $50,000.
2. Choose an admitted surety/broker. Verify the surety is authorized in California and familiar with dealer bonding.
3. Complete underwriting. Expect a credit check; some markets request personal financials, business financials, or a resume.
4. Review and sign the bond. Ensure your legal name and license type match DMV records precisely.
5. File with the DMV. Submit the executed bond with your license application or renewal packet.

Renewals, changes, and cancellations

Your bond must remain continuous and in force for your license to stay valid. If you change your business structure, legal name, or license category (for example, your wholesale volume increases above the threshold), coordinate updates with your broker and notify the DMV promptly. Lapses can jeopardize your license and disrupt operations.

How bond claims work—and how to avoid them

Filing & investigation: A claimant (consumer, seller, lienholder/finance company, or agency) submits a claim to the surety. The surety investigates whether a covered violation occurred. If the claim is valid, the surety may pay up to the bond limit—and you, as the principal, must reimburse the surety for losses and costs under your indemnity agreement.

Common causes of claims

• Delayed title work or unpaid trade-in payoffs.
• Odometer or title brand disclosure errors.
• Unpaid fees/taxes that impair transfer.
• Misrepresentations in advertising or deal documents.

Preventive best practices

• Use tight desk procedures and checklists for every deal.
• Reconcile payoff and DMV fee disbursements promptly.
• Audit deal jackets regularly for disclosures and signatures.
• Maintain separate trust accounting where required (especially with autobrokered transactions).

Special note for wholesale-only dealers

If you are wholesale-only and sell fewer than 25 vehicles per year, you can generally qualify for the $10,000 bond tier. Once you reach 25 or more wholesale transactions in a year, the bond requirement steps up to $50,000. Plan ahead so you can adjust your bond level before renewal deadlines and avoid any licensing disruptions.