Michigan Auto Dealer Bond

Michigan requires all Class A (new vehicle), Class B (used vehicle), and Class D (broker) dealers to obtain a $25,000 surety bond. You pay only a small percentage of this amount as your annual premium, typically ranging from 1% to 10% depending on your credit profile.

Applicants with excellent credit scores (700 or above) receive the best rates, typically between 1% and 3% of the bond amount. Those with good credit (600 to 699) can expect rates between 3% and 5%. Even if your credit score is below 600, you can still get bonded, though your rate will be between 5% and 10% of the bond amount.

The bond amount increased from $10,000 to $25,000 effective January 23, 2023. All dealers licensed after that date must post the $25,000 bond, while dealers licensed before that date had until December 31, 2023 to increase their bond amount.

Getting your Michigan vehicle dealer bond is a straightforward process that takes just a few steps:

Step 1: Complete Your Application

Start by filling out a bond application with a licensed surety company. You will need to provide basic information about your dealership, including your business structure, ownership details, and financial information. The surety company will also run a credit check as part of the underwriting process.

Step 2: Receive Your Quote

Once the surety company reviews your application, they will provide you with a quote for your bond premium. This quote will be based on your credit score, business experience, and financial strength. Most applicants receive their quote within one business day, and many receive instant quotes.

Step 3: Purchase Your Bond

After you accept the quote and pay your premium, the surety company will issue your bond. You will receive the original bond document, which you must then file with the Michigan Department of State along with your dealer license application.

Step 4: File Your Bond with Michigan

Mail your completed bond form to:

Michigan Department of State Business Licensing Section 430 W. Allegan, 4th Floor Lansing, MI 48918

The bond must be executed by both you and an authorized surety company. The Michigan Department of State will not accept your license application until the bond is properly filed.

Michigan law requires anyone who buys, sells, brokers, or leases 5 or more vehicles within a 12 month period to obtain a dealer license and file a surety bond. Specifically, you need a Michigan vehicle dealer bond if you hold one of these license types:

• Class A (New Vehicle Dealer): Selling new vehicles directly to consumers
• Class B (Used Vehicle Dealer): Selling used or secondhand vehicles directly to consumers
• Class D (Motor Vehicle Broker): Acting as an intermediary to arrange vehicle sales

License Classes That Do NOT Require a Bond

The following Michigan dealer license classes are exempt from the bond requirement:

• Class C (Distressed Vehicle Transporter): Transporting distressed vehicles
• Class E (Salvage Vehicle Agent): Buying and selling salvage vehicles
• Class F (Foreign Salvage Vehicle Dealer): Dealing in foreign salvage vehicles
• Class G (Scrap Metal Processor): Processing vehicles for scrap metal
• Class R (Repair Facility): Repairing vehicles only
• Class W (Wholesaler): Selling exclusively to other licensed dealers

If you operate exclusively as a wholesaler, salvage dealer, or repair facility, you do not need to post a bond. However, if you hold multiple license types and one of them is Class A, B, or D, you must post the $25,000 bond.

Special Requirement for Class B Dealers

Class B (used vehicle) dealers must complete a prelicensing training program within six months before applying for their license. This training requirement is in addition to the bond requirement and covers Michigan dealer laws, regulations, and best practices.

When someone believes they have suffered a financial loss due to your actions as a dealer, they can file a claim against your bond. The claim process works as follows:

Investigation Phase

After receiving a claim, the surety company conducts a thorough investigation to determine if the claim is valid. They review all documentation, interview involved parties, and verify that the alleged violation falls within the bond's coverage. The surety will only pay claims based on fraud, cheating, or misrepresentation after a court judgment or final administrative order from the Secretary of State.

Payment Phase

If the claim is validated through legal proceedings, the surety company will pay the claimant up to the full amount of your bond ($25,000 maximum). The bond also covers sales tax and use tax deficiencies owed to the state.

Reimbursement Phase

Here is an important aspect of surety bonds: you are ultimately responsible for any claims paid. The surety company pays the claimant on your behalf, but you must reimburse the surety company for the full amount of the claim, plus any investigation costs and legal fees.

License Suspension

Michigan requires your bond to remain active continuously to maintain your dealer license. If your surety company cancels your bond, they must provide 30 days written notice to the Secretary of State. If you do not have a replacement bond in place when the cancellation becomes effective, your dealer license will be suspended automatically.

Michigan vehicle dealer bonds run continuously, meaning they do not have annual expiration dates like your dealer license does. However, you must pay an annual premium to keep your bond active.

Your surety company will contact you before your premium payment is due to begin the renewal process. Because bond premiums can change based on your credit and financial situation, your renewal rate may be different from your initial rate.

If your credit score has improved or your business has grown stronger financially, you may qualify for a lower renewal rate. Conversely, if your credit has declined or you have had claims against your bond, your renewal rate may increase.

To avoid any gap in coverage that could result in license suspension, pay your renewal premium on time. Most surety companies send renewal notices 30 to 60 days before the due date.

Beyond the surety bond, you'll need:

• Established place of business in Michigan that meets local zoning requirements (subject to state inspection)
• No-fault fleet insurance (Class A and B): $20,000/$40,000 bodily injury, $10,000 property damage
• Fingerprints from all owners, partners, officers, and directors for state and federal background checks
• Prelicensing training completed within six months of applying (Class B only)

Submit your application through the Michigan Department of State Business Licensing Section with:

• Dealer application packet
• $25,000 vehicle dealer bond
• Certificate of insurance
• Fingerprints for all principals
• Proof of established place of business and zoning approval
• Franchise agreement (Class A only) or prelicensing training certificate (Class B only)
• Application fees

The Department reviews applications within 15 days.

Do I need a bond if I only sell to other dealers?

No. Class W (wholesale) dealers who sell exclusively to other licensed dealers do not need to post a bond. However, if you sell even one vehicle directly to a consumer, you must obtain a Class A or Class B license, which requires the $25,000 bond.

What happens if I move my dealership to a new location?

Before moving your place of business, you must apply to the Michigan Department of State for approval of your new location. You will need to demonstrate that the new location meets all zoning and facility requirements. Your existing bond remains valid through the location change, you do not need to obtain a new bond.

Can I hold multiple dealer license classes with one bond?

Yes. If you hold multiple license classes (for example, both Class A and Class B), a single $25,000 bond covers all classes that require bonding. You do not need separate bonds for each class.

What if my dealership is a partnership or corporation?

Your bond must list all partners or corporate officers. If you add or remove partners or officers, you must notify your surety company and the Michigan Department of State. Some changes may require an amended bond filing.