Michigan Auto Dealer Bond: A Comprehensive Guide

Effective January 23, 2023, the limit on the Michigan Auto Dealer Bond has been increased to $25,000 (the limit was previously $10,000). The Michigan legislature authored the bond increase in Michigan Senate Bill 1064 to grant consumers additional protection from financial harm.  This page has been updated to reflect the bond increase.

At a Glance:

• Lowest Cost: $100 per year or $10 per month
• Bond Amount: $25,000
• Who Needs It: All individuals or business entities who sell or deal in 5 or more motor vehicles within a 12 month period
• Purpose: To ensure the public will receive compensation for any damages should the auto dealer fail to comply with dealer licensing law
• Who Regulates Dealers in Michigan: The Michigan Secretary of State (SOS)

Background

Michigan Vehicle Code Section 257.248 mandates auto dealers operating in the state to obtain a motor vehicle dealer license with the SOS. The Michigan legislature enacted the license and regulations to ensure that dealers engage in ethical business practices and remit required taxes and fees. In order to provide financial security for the enforcement of the license law, dealers must purchase and maintain a $25,000 uniform vehicle dealer surety bond to be eligible for licensure.

Auto dealers who are currently licensed must increase their existing bond amount to $25,000 by December 31, 2023.

What is the Purpose of the Michigan Auto Dealer Bond?

Michigan requires dealers to purchase the Motor Vehicle Dealer Bond as part of the application process for the Motor Vehicle Dealer License. The bond ensures that the public will receive compensation for financial harm if the auto dealer fails to comply with the licensing regulations and that the dealer will pay all required taxes and fees to the State of Michigan. In short, the bond is a type of insurance that protects the public if the dealer breaks licensing laws.

How Can an Insurance Agent Obtain a Michigan Auto Dealer Bond?

BondExchange makes obtaining a Michigan Auto Dealer Bond easy. Simply login to your account and use our keyword search to find the “auto dealer” bond in our database. Don’t have a login? Gain access now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensure that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

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How Much Does the Michigan Auto Dealer Bond Cost?

The $25,000 Michigan Uniform Vehicle Dealer bond costs just $100 per year or $10 per month. Generally, insurance companies determine the rate based on a number of factors including your customer’s credit score and experience; however, BondExchange has an exclusive program that allows for these bonds to be quoted and issued without a credit check!

How Does Michigan Define “Motor Vehicle Dealer”?

To paraphrase Michigan Vehicle Code Section 257.248, a motor vehicle dealer is anyone who administers or participates in the sale or lease of 5 or more motor vehicles in a 12 month period either directly or indirectly.

BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.

How Do Dealers Apply for a Motor Vehicle Dealer License in Michigan?

Dealers in Michigan must navigate several steps to secure their motor vehicle dealer license. Below are the general guidelines, but dealers should refer to the Instruction Booklet and Dealer Licensing Manual for details on the process.

License Period – The Michigan Dealer License expires on December 31 of each year regardless of the date of issuance and must be renewed before the expiration date.

Step 1 – Determine the License Type

Michigan requires dealers to obtain specific licenses corresponding to the nature in which the dealer’s business operates. Keep in mind that dealers will need to acquire a license for each type of business they wish to operate. Below are the different types of the Michigan Dealer License.

• • Class A (New Vehicle Dealer) – Sells new or used motor vehicles
  • Class B (Used Vehicle Dealer) – Sells used motor vehicles only
  • Class C (Used Vehicle Parts Dealer) – Sells parts obtained from used motor vehicles
  • Class D (Broker) – Connects buyers with sellers
  • Class E (Distressed Vehicle Transporter) – Buys, sells, or transports motor vehicles to either a Class C, Class F or Class R dealer
  • Class F (Vehicle Scrap Metal Processor) – Processes vehicles into scrap metal
  • Class G (Vehicle Salvage Pool) – Holds and displays distressed motor vehicles for insurance companies
  • Class H (Foreign Salvage Vehicle Dealer) – Licensed in a state other than Michigan and sells vehicle parts wholesale
  • Class R (Automotive Recycler) – Sells late model major component parts
  • Class W (Wholesaler) – Sells used motor vehicles to other licensed dealers

***The remaining steps will focus on how to obtain the Class A and Class B Licenses. Dealers can consult the Dealer Licensing Manual for instructions on how to obtain each specific license.***

Step 2 – Establish a Location

Before dealers can obtain their dealer license they must first buy or lease a permanent business location. The location must meet the following requirements:

• • An enclosed building used for commercial purposes only
  • Store all required records and documents
  • Contains a furnished office that is at least 150 square feet and has a functioning restroom
  • A telephone number listed in the business name
  • The display area is well lit, at least 1,300 square feet, and can display a minimum of 10 motor vehicles
  • Minimum of 650 square feet of space for customer parking
  • Lists the hours of operation
  • Has a registered repair facility or a contract agreement with a registered repair facility no more than 10 miles away

Step 3 – Erect a Sign

Dealers must erect a permanently affixed sign displaying the business name and is clearly visible from the nearest public street.

Step 4 – Obtain Zoning Approval

Dealers must obtain written approval from their local zoning authority certifying that their business location is in compliance with all applicable zoning regulations. Dealers will need to submit a Zoning Approval Form with their application.

Step 5 – Complete Dealer Training

Class A and Class B dealers must attend a mandatory pre-licensing training course prior to submitting their applications. Dealers can register for a training course here.

Step 6 – Purchase a Surety Bond

Dealers must purchase and maintain a $25,000 uniform vehicle dealer surety bond. Class “C”, “E”, “F”, “G”, “R”, and “W” Dealers are exempt from the surety bond requirement.

Step 7 – Obtain Insurance

Class A and Class B dealers must have no-fault fleet insurance with minimum limits of 20/40/10. Dealers will need to submit a Certificate of Insurance with their application.

Step 8 – Complete the Application

All new dealer regulatory license applications and dealer regulatory license renewal applications should be mailed to:

Michigan Department of State
Business Licensing Section
Lansing, MI 48918

Dealers can access the application packet here. The following items should be included in the packet:

• • 8.a Fingerprints – All dealer applicants must submit a copy of their fingerprints with their application. Dealers can get their fingerprints taken by contacting any of the vendors listed here.
  • 8.b Municipality Approval – Dealers must obtain approval from their local municipality before obtaining their license. Dealers must complete the Municipal Approval form and submit it with their application.
  • 8.c Sales Tax Number – Dealers must have a Michigan Sales Tax Number and list it on their application. Dealers can obtain a sales tax number by contacting the Michigan Department of Treasury at (517) 636-4660.
  • 8.d Franchise Agreement – Class A dealers must submit a franchise agreement with their application authorizing them to sell each make and model of new motor vehicle
  • 8.e Designated Branch Office – Dealers must submit a Designated Branch Office form with their application specifying where dealer transactions will take place
  • 8.f Dealer Plates – Class A and Class B Dealers must purchase a minimum of two dealer plates when submitting their application. Dealers can request the number of dealer plates desired on their application form.
  • 8.e Servicing Agreement – Dealers who do not have a repair facility at their business location must submit a Servicing Facility Agreement form with their application

Step 9 – Pay Fees

Dealers must pay a $75 application fee when submitting their application, plus an additional $10 fee per dealer plate requested.

Step 10 – Pass Inspection

Dealers will need to pass an inspection of their business location before being issued their dealer license.

How Do Michigan Auto Dealers Renew Their License?

Dealers can renew their license either online or through the mail. The Michigan Dealer License expires on December 31st of each year regardless of the date of issuance and must be renewed before the expiration date. Dealers should follow the steps in the Renewal Instructions Sheet when submitting their renewal application. When renewing the license by mail, dealers can send their renewal application to:

Michigan Department of State
Business Licensing Section
Lansing, MI 48918

The uniform vehicle dealer bond is continuous, meaning that the dealer does not need to provide a new bond at their license renewal; however, the bond should be renewed at expiration to avoid cancellation.

What Are the Insurance Requirements for the Michigan Auto Dealer License?

The State of Michigan requires Class A and Class B (sometimes Class W) Dealers to obtain no-fault fleet insurance with limits of 20/40/10. Class C and Class R Dealers are required to obtain worker’s compensation insurance. Class A, B, D, and H Dealers must also file a $25,000 motor vehicle dealer bond.

How Do Michigan Auto Dealers File Their Bond?

Dealers should mail the completed bond form, including the power of attorney, to the following address:

Michigan Department of State
Dealer Division
Lansing, MI 48918

The $25,000 surety bond requires signatures from both the surety company that issues the bond and the auto dealer. The surety company should include the following information on the bond form:

• Legal name and location of entity/individual(s) buying the bond
• Surety company’s name
• Date the bond will go into effect
• Date the bond is signed and sealed
• Witness signatures for both the surety and principal

How Can Michigan Auto Dealers Avoid Bond Claims?

To avoid claims on the Motor Vehicle Dealer Bond, dealers must follow all dealer regulations in the state, including some of the most important issues below that, tend to cause claims:

• Do not engage, or allow representatives of the business to engage, in any acts of fraud
• Pay sellers of vehicles promptly and in full
• Transfer all vehicle titles when sold
• Pay taxes on time and in full. Dealers should consider setting aside tax obligations as they accrue.
• Do not engage in any illegal selling practices

What Other Insurance Products Can Agents Offer Dealers in Michigan?

Michigan requires Class A and Class B dealers to obtain no-fault fleet insurance on all vehicles with dealer plates. Class C and Class R dealers are required to obtain worker’s compensation insurance. Most reputable dealers should also obtain garage keeper’s liability. Bonds are our only business at BondExchange, so we do not issue any form of liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for Michigan Auto Dealer Customers?

Michigan conveniently provides a public database to search for active motor vehicle dealers in the state. The database can be accessed on the Michigan E-Services site here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

What Other States Require Auto Dealer Bonds?

All 50 states and the District of Columbia require auto dealers to obtain an Auto Dealer Bond as a prerequisite for licensure. Insurance agents should utilize our Main MVD Page for a detailed analysis of the Auto Dealer Bond requirements nationwide.