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What Is Does An Auto Dealer Bond cover in New Mexico, Utah, and Texas?

When it comes to auto dealer bonds, is important to build faith between the parties involved. This way, a customer will believe that the dealer is being honest about a particular vehicle that they will eventually use. On the other hand, creditors and sellers believe that the dealer will reimburse them for the financing and inventory. The government also trusts that the dealers will pay taxes and abide by the law. Therefore, every motor vehicle dealer is required to establish a strong trust with all third parties and stakeholders involved to ensure growth and prosperity.

This type of bond is a surety bond that provides protection to the government, customers, and creditors. As a matter of fact, most governments require auto dealers to obtain a surety bond before issuing a dealership certificate or authorization. Any particular motor vehicle dealer bond is also called a dealer bond, DMV bond, or MVD bond. This type of bond requires the use of an external party that acts as a guarantor for an auto dealer to offer a business guarantee that every operation will be performed in accordance with ethical and legal standards. It is essential for an auto dealer to understand the essential facts about auto dealer bonds before commencing their search if they want to obtain a auto surety bond.

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Auto Dealer Bond Policies in New Mexico, Utah, and Texas

How Does It Work?

A auto dealer bond is similar to a surety bond. A surety bond is a tri-party contract that guarantees that the initial party (also known as the principal party) will abide by the ethical values and laws required by a second party (also known as the obligee), along with an unbiased third party (also known as the surety) who provides the guarantee. In the case of auto dealer bonds, the principal party is the dealer, the government is the obligee, and the insurer is the surety (the party that issues the surety bond).

Compared to different types of insurances, an auto dealer bond provides protection to the third parties (the creditors and customers) in the event that something goes wrong rather than to the dealer. In case of any claims by the second party that the dealer is not acting in compliance and failing to meet the ethical and legal requirements, a claim can be filed by that party against the surety who provided the dealer’s bond.

Here are the parties that have the right to initiate a claim against the dealer:

Seller who sells an auto to a particular dealer
State regulators who issue the dealership license
Consumer who buys the vehicle from a dealer
Creditor who finances the dealer’s inventory
Lender who provides consumer financing with the dealer

Here are some of the common reasons when the third party has the right to initiate a claim:

Failure to report a vehicle’s sale
Misrepresentation of the condition of a vehicle, including interfering with any of the parts
Selling stolen vehicles
Failing to pay the required sales tax to the state government
Failure to provide a legal certificate of title for a purchased vehicle

Some states even allow traceable online databases where anyone can check if the dealer is certified and covered by the bond before they purchase a vehicle.

Types of Auto Dealer Bonds

The first step is to determine what type of dealership it is to figure out the type of dealership bonds a dealer needs. You can look up the specific laws regarding auto dealer bonds for a particular state. The various types of motor vehicle dealerships may require their own type of surety bond (although it depends on the state).

RV Dealership/Motorsports/Trailer

Many dealerships sell other types of vehicles, such as motorcycles, RVs, ATVs, and trailers. Some states include this under a general MVD bond, while others require separate bonds, such as a recreational vehicle dealer bond or a motorcycle dealer bond.

Wholesale Dealership

These types of dealerships sell old and used cars in bulk to various dealers. Many states permit wholesale dealerships to use similar auto bonds as used by other car dealers; however, certain states also mandate the use of a different bond like a wholesale dealer bond.

Franchise Dealership

Franchise dealerships exclusively or mainly sell original vehicles on the basis of a licensed agreement between the dealer and the vehicle producer. However, the dealer can also sell old or used vehicles. In certain states, one primary bond covers both used vehicle retail dealers and franchised new car dealers. Whereas in several other states, new car dealerships do not require auto dealer bonds at all.

Salvage Dealership

Salvage dealerships focus on pulling apart vehicles that are no longer functional and sell them for other spare parts. Some states require parts recycler bonds or special automotive dismantler bonds.

Independent Used Vehicle Dealership

This type of dealership sells old and used cars of various models. Independent vehicle dealerships are required to have an auto bond in almost all states, including a used auto dealer bond.

Wholesale Motor Vehicle Auction

A wholesale motor vehicle auction dealership works by selling old and used cars at auctions, usually to different dealers. However, some may also be open to the public. A few states have the requirement to have a separate bond for auction dealers. For instance, a wholesale vehicle auction bond is acceptable in some states.

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An auto dealer bond is like a promise or a pledge to comply with the terms and conditions of the written contract with the exchange or sale of a motor vehicle. It also requires the dealer to obtain a standard dealership license before the transition can take place. If the dealer fails to comply with any of the terms and conditions mentioned in the contract, the financial losses or damages will be paid to the person who suffers the loss due to the unlawful practices of the dealer.

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