Becoming a Motor Vehicle Dealer in California

How to Become a Motor Vehicle Dealer in California

If you want to become a motor vehicle dealer in California, you have to get your occupational license from the California Department of Motor Vehicles. Fortunately, obtaining an auto dealer license in California is straightforward. This article will outline the steps you need to take to get licensed and provide additional resources to help you get started.

What is a California Motor Vehicle Dealer?

A motor vehicle dealer is defined as a person who sells, leases, exchanges, or offers for sale, lease, or exchange, any new or used motor vehicle. This includes sales of motorcycles, off-highway vehicles, and recreational vehicles. California distinguishes between motor vehicle dealers based on the type of vehicles they sell.

To obtain a license to operate as a motor vehicle dealer in California, you must first apply with the state’s Department of Motor Vehicles (DMV).

Why Do I Need an Auto Dealer License?

The California DMV regulates the sale of motor vehicles in California to protect consumers from fraudulent and dishonest business practices. That is where the California motor vehicle dealer licenses come into play, which you will need if you want to go into business selling new or used vehicles, motorcycles, all-terrain vehicles, or recreational vehicles.

But, in order to get a license, dealers must demonstrate that they are qualified to operate their business in a fair, honest, and lawful manner. Dealers may also need a physical location where they can do business and display their inventory, depending on their license type.

California Motor Vehicle Dealer Steps

How to Become a Licensed CA Motor Vehicle Dealer

While the application process for a motor vehicle dealer license isn’t necessarily complicated, the numerous documents required can make it seem confusing when getting started.

Determine which license you need

The first step is to determine which type of license you need. In California, there are four types of licenses:

  1. New Auto Dealer License: this allows you to sell both new and used vehicles to the public, other vehicle dealers, and at auction.
  2. Used Auto Dealer License: this allows you to sell only used vehicles to the public and other vehicle dealers.
  3. Wholesale Dealer License: this allows you to sell only to other licensed vehicle dealers and at auction. Vehicle dealers with this type of license may not sell directly to the public.
  4. Autobroker’s Endorsement: an additional endorsement to any of the other licenses and allows you to act as a broker by arranging or negotiating the sale of vehicles for someone else in exchange for compensation.

Once you identify which license applies to you, you will need to meet the remaining requirements.

Complete education and exam requirements

The next step is to complete the Dealer Education and Examination Program. This program is designed to ensure that you understand the laws and regulations related to selling motor vehicles in California.

The education requirement can be fulfilled by either taking a six-hour pre-licensing course offered by a DMV-approved provider or completing an approved home study course.

California Motor Vehicle Dealer Laws

After you have completed the education requirement, you must pass an examination administered by the DMV. The exam covers various topics, including California motor vehicle laws, dealer licensing requirements, and recordkeeping. The 40-question exam is multiple-choice, and you must earn a score of at least 70% to pass. You get three attempts to pass the exam, but you must wait at least one week between each attempt.

When you pass the exam, you’ll need to submit an education and examination Certificate of Completion along with your license application.

Obtain your surety bond

The next step is to get your California Motor Vehicle Dealer License Bond. Also known as an auto dealer bond, this type of surety bond is designed to protect the state and consumers against fraudulent and unethical practices of licensed auto dealers. Unlike insurance, an auto dealer surety bond does not protect the vehicle dealer from loss or injury. Instead, the bond ensures the auto dealer will follow the rules established by the California Department of Motor Vehicles (DMV) and any relevant California laws.

Like most bonds, there are three parties to a California Motor Vehicle Dealer License Bond: the principal, the obligee, and the surety company that guarantees the bond. The principal is the party required to get a bond, in this case, the motor vehicle dealer applying for the license. The obligee is the entity that requires the bond, which is the California DMV.

The required bond amount for a California auto dealer bond depends on the specific type of dealer license you apply for. For example, Motorcycle dealers, motorcycle lessor-retailers, ATV dealers, and wholesale-only dealers (selling less than 25 vehicles per year) only need a $10,000 surety bond. However, new motor vehicle dealers selling more than 25 vehicles annually have a $50,000 surety bond requirement.

California Auto Dealer Bonds

How much you pay for your bond is a percentage of the total bond amount, called your premium. This amount varies and depends primarily on your credit and your industry experience. Typically, the premium for a California auto dealer bond starts around 1% to 5%, and may possibly be higher for individuals with nonstandard credit and little to no experience. Dealers with excellent credit and significant experience may pay as little as 1% of the bond amount for their bond.

For your free quote, contact South Coast Surety or fill out this short online application today! After you apply, one of our surety experts will contact you with your quote. If you have nonstandard credit, we still encourage you to apply for your bond! At South Coast Surety, we work with several markets for nonstandard credit to try and find you the best quote available.

Prepare all required documents and forms

The next step in the licensing process is to prepare all the required forms you need to submit with your application. Make sure to choose the appropriate application packet to fill out: New Dealer Applications Forms Packet or Used Dealer Applications Forms Packet. This includes:

  • Application for Original Occupational License—Part C (OL 12)
  • Original Application for Occupational License—Part A (OL 21A)
  • OL 25 Surety Bond of Dealer or OL 25B Surety Bond of Motorcycle Dealer, Motorcycle Lessor-Retailer, All-Terrain Vehicle Dealer, or Wholesale-Only Dealer
  • OL 53 Authorization To Release Financial Information
  • Certificate of Proposed Franchise (OL 124)
  • OL 29B Application for Occupational License Personal History Questionnaire
  • ADM 9050 Appointment of Director as Agent for Service of Process
  • DMV 8016 Request for Live Scan Service

You may also need to provide the following supporting documents along with your application:

  • Evidence of successful completion of the Vehicle Dealer Written Examination
  • Original Dealer Education Certificate of Completion
  • Fictitious Name Statement
  • Signed copy of your rental or lease agreement
  • Copy of Business License, Certificate of Occupancy License, or Tax Certificate
  • Copy of State Board of Equalization Resale Permit
  • Photographs of business location

The above list may not be all-encompassing, so check the DMV’s requirements before finalizing your application.

Submit your application and pay all necessary fees

The final step in the licensing process is to submit your application and pay all necessary fees. The California DMV accepts applications by mail or delivered in person to the nearest DMV office.

California Motor License Fees

When you submit your California Motor Vehicle Dealer License application, expect to pay a $175 non-refundable processing fee, plus an additional $70 for each branch location. Additional fees (as of 2022) include:

  • $92 for each dealer plate
  • $94 for each motorcycle plate
  • $100 Autobroker Endorsement fee (if applicable)
  • $300 Motor Vehicle Board fee (per location)

Another requirement for the license is to submit to a background check, which comes with another fee. For an initial background check, there is a fingerprint processing fee of $49. If you have been fingerprinted in the past 12 months, you will only pay a $32 fee.

Refer to the DMV’s website to determine who checks or money orders should be made payable to (different fees may be required to be paid to different CA departments). After your application has been processed and approved, you will receive your dealer license certificate and license plates in the mail.

We hope you found this article helpful, and if you have any questions regarding your surety bonding needs in the future, we would love to hear from you at 949-361-1692.

Key Takeaways

  • To become a motor vehicle dealer in California, you must first obtain an occupational vehicle dealer license from the state.
  • Before applying for a vehicle dealer license, you must determine what type of license you need, complete the education and exam requirements, collect all necessary forms and documents, and pay any required fees.
  • As part of your application, you must also obtain a California Motor Vehicle Dealer License Bond, a type of surety bond.
  • The cost of your motor vehicle dealer bond will vary depending on your credit history, industry experience, and the type of license you are applying for.
  • Individuals with excellent credit may see quotes starting as low as 1% of their bond amount. If you have nonstandard credit, we encourage you to apply for your free quote anyway!

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