Delaware Auto Dealer Bond: A Comprehensive Guide

October 13th, 2020

This guide provides information for insurance agents to help new and pre-owned car dealership owners on Delaware Auto Dealer bonds

At a Glance:

• Average Cost: $150 – $250 per year, based on the business owner’s credit
• Bond Amount: $25,000
• Who Needs It: All individuals and businesses that sell or deal in 5 or more motor vehicles in 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 Delaware: The Delaware Division of Motor Vehicles (DMV)

Background

Delaware Statutes Title 21 Chapter 63 mandates auto dealers operating in the state to obtain a motor vehicle dealer license with the DMV. The Delaware 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 motor vehicle dealer surety bond to be eligible for licensure.

https://www.youtube.com/watch?v=tqnhwkPpgwQ

What is the Purpose of the Delaware Auto Dealer Bond?

Delaware 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 Delaware. 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 Delaware Auto Dealer Bond?

BondExchange makes obtaining the Delaware 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? Enroll 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 ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

How Much Does the Delaware Auto Dealer Bond Cost?

The $25,000 Delaware Motor Vehicle Dealer surety bond can cost anywhere between $150 to $250 per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on the $25,000 bond requirement.

$25,000 Delaware Auto Dealer Bond Cost

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

How Does Delaware Define “Motor Vehicle Dealer”?

To paraphrase Delaware Statute 6301, a motor vehicle dealer is any person or business entity who buys, sells, echanges, advertises or negotiates the sale of 5 or more motor vehicles in a 12 month period. Exemptions to this definition include:

• Any person acting under the authority of a court order
• Public officers performing official duties
• Any financial institution or insurance company who sells or disposes motor vehicles in the normal course of business
• A licensed auctioneer acting on behalf of the seller (title must be in seller’s name)
• Manufacturers or distributors selling to licensed dealers only
• Nonprofit educational foundations

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

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

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

Step 1 – Determine the License Type

Delaware 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 Delaware dealer license.

• • New Vehicle Dealer – Sells new or used motor vehicles
  • Used Vehicle Dealer – Sells used motor vehicles only
  • Trailer Dealer – Sells trailers, utility vehicles, horses, boats etc.
  • Mobile Home Dealer – Sells mobile homes
  • Motorcycle Dealer – Sells motorcycles
  • Recreational Vehicle Dealer – Sells RVs
  • Wholesaler – Sells motor vehicles to other licensed dealers only
  • New Truck Dealer – Sells new trucks
  • New Equipment Dealer – Sells new equipment
  • Transporter – Transports motor vehicles
  • Repossession and Auction Dealer – Allowed to repossess motor vehicles and sell motor vehicles at auction
  • Recycler – Dismantles motor vehicles with the purpose of selling parts

***The following steps focus on obtaining retail dealer licenses. Specific guidelines for all other dealer licenses can be found in the Delaware Dealer Procedures Manual.***

Step 2 – Establish a Location

Dealers are required to establish a permanent place of business that meets the following minimum requirements:

• • Is owned, rented or leased by the dealer
  • Office space and a display lot large enough to display at least 5 motor vehicles
  • Telephone installed in the office that is listed in the business’s name
  • Permanently affixed sign measuring at least 2 x 3 feet and displays the business name
  • Computer and laser printer
  • Adequate filing cabinets to maintain records required by the DMV

Step 3 – Obtain Zoning Approval

Dealers must obtain written approval from their local zoning official certifying that their business location is in compliance with all applicable zoning requirements.

Step 4 – Acquire Insurance

Dealers are required to purchase and maintain liability insurance for all vehicles with dealer tags (limits not specified).

Step 5 – Purchase a Surety Bond

Dealers must purchase and maintain a $25,000 auto dealer surety bond. While the license expires on December 31st each year, the bond may be purchased annually or for multiple years and does not need to run concurrently with the license period.

Step 6 – Complete the Application

Dealers can access the dealer license application here.  All new dealer regulatory license and renewal applications should be mailed to the following address:

Division of Motor Vehicles
303 Transportation Cir
Dover, DE 19901

The following information must be included with the application:

• • 6.a Business License – Dealers must obtain a business license and submit a receipt of payment for the $100 business license application fee. Dealers can learn how to obtain a business license with the Delaware Division of Revenue here.
  • 6.b Entrance Permit – Dealers whose place of business is located on a state maintained road are required to submit an entrance permit with their application. Dealers can obtain an entrance permit with the Delaware Department of Transportation here.
  • 6.c Driver’s License – Dealers must have been issued a Delaware driver’s license at least 90 days prior to submitting their application. Franchised new vehicle dealers are exempt from this requirement
  • 6.d Franchise Agreement – Dealers selling new motor vehicles must submit either their franchise agreement or written approval from a manufacturer allowing them to sell each make and model of new motor vehicle
  • 6.e Background Check – Applicants must obtain a criminal history report from the Delaware State Bureau of Identification. Dealers must also submit a Signature of Authorization form with their application
  • 6.f Lease Agreement – Dealers must submit their lease agreement, if they do not own their business location, with their application

Step 7 – Request Dealer Plates

Dealers are issued dealer plates based on their annual sales volume. New applicants can estimate their first year’s sales to determine their dealer plate allowance. Each dealer plate is $10 and must be renewed annually. The chart below details the number of dealer plates allowed for each tier of sales output:

Step 8 – Pass Inspection

After the dealer’s application has been approved a representative from the DMV will conduct an inspection of the dealer’s business location ensuring that the location meets the requirements outlined in Step 2.

***There is no application fee for the Delaware dealer license***

How Do Delaware Auto Dealers Renew Their License?

Dealers should mail their renewal application to the following address:

Division of Motor Vehicles
303 Transportation Cir
Dover, DE 19901

The Delaware Dealer License expires on December 31 of each year and must be renewed before the expiration date. Dealers can request their renewal application from the DMV 90 days before the expiration date.

***Dealers who sell fewer than 5 motor vehicles during the prior year will not be allowed to renew their license unless given express permission by the Director of the DMV.***

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

The State of Delaware requires dealers to obtain comprehensive liability insurance (limits not specified). Dealers must file a $25,000 motor vehicle dealer bond.

How Do Delaware Auto Dealers File Their Bond?

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

Division of Revenue
P.O. Box 9811
820 N. French Street
Wilmington DE 19801

The $25,000 surety bond requires signatures from both the surety company that issues the bond and the auto dealer. The bond form will require the following items:

• Legal name of entity/individual(s) buying the bond
• Date the bond is sealed
• State of Incorporation for the Surety

How Can Delaware 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
• 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
• Do not tamper with the odometer on any motor vehicle
• Maintain an established place of business
• Be truthful on the application

What Other Insurance Products Can Agents Offer Dealers in Delaware?

Delaware requires dealers to obtain comprehensive liability insurance on all vehicles with dealer plates. Most reputable dealers that provide towing or service station services should also obtain garage keepers 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 Delaware Auto Dealer Customers?

Delaware conveniently provides a public database to search for active motor vehicle dealers in the state. The database can be accessed on the DMV 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.