It’s important not to confuse an auto dealer bond with auto dealer insurance. Even though auto dealer bonds are sometimes wrongfully referred to as auto dealer bond insurance, they do not protect the dealer, they protect the state and the general public.
Think of your bond as a line of credit extended to your dealership by the bonding company.
Auto dealer bonds are a way to compensate dealers’ customers if they become victims of fraud or unethical business practices. These include (but are not limited to):
- Tampering with the odometer
- Providing false information about the vehicle’s condition
- Failure to honor oral or written warranties
- Engaging in deceptive financing methods, such as “yo-yo” financing
- Not paying state sales tax or other applicable fees
- Not reporting sales
- A claim can be made on the auto dealer bond if the dealership doesn’t follow all applicable laws and regulations.
- If a legitimate claim is filed against the dealership, the bond company will pay all relevant costs up to the amount of the surety bond it had underwritten. However, the dealer will have to reimburse these costs later on, which means avoiding claims is the best course of action.
Some bond agents actually discount the price of the auto dealer bond upon presentation of proof of valid auto dealer insurance.