Alabama Auto Dealer License Guide

Learn how to become licensed as an Alabama auto dealer, and speak with an Single Source Insurance agent today about purchasing the bond you�ll need to operate as an auto dealer in Alabama.�

What Are the Different Types of Alabama Auto Dealer Licenses?

In 2020, Alabama combined its four types of motor vehicle dealer licenses (new, used, wholesaler, and rebuilder) into a single Master Dealer License, allowing a dealer to do everything those four licenses permitted. The Alabama Department of Revenue, Motor Vehicle Division licenses and regulates auto dealers throughout the state.

What Are the Steps in the Licensing Process?

Before applying for your initial license as a vehicle dealer, you�ll need to do everything required to establish a legal business entity in Alabama. Once you�ve done that, you must:

• Secure a permanent business location that meets MVD requirements.
• Purchase blanket liability insurance.
• Obtain a sales tax number from DOR.
• Purchase an Alabama auto dealer bond in the amount of $50,000.
• Complete the online license application.
• Print the transmittal sheet, attach all required documents, and mail them to MVD along with payment for the license application fee (currently $125).
• Obtain a dealer�s privilege license (which allows you to operate in the county where your dealership is located) from the county probate office.

Why is an Alabama Auto Dealer Bond Required?

An Alabama auto dealer bond establishes a legally binding contract between three parties. The dealer is known as the bond’s principal. MVD, the party requiring the bond, is the “obligee,” and the bond’s guarantor is called the “surety.”

When you purchase an Alabama auto dealer bond, you are guaranteeing that you will operate your dealership in compliance with the laws regulating the industry and the business practices of licensed dealers. If you fail to live up to that guarantee and cause the state or a consumer to experience a financial loss, the injured party has the right to seek compensation for the damages by filing a claim against your bond.

You must renew your Alabama auto dealer bond each year before it expires. Without an active bond in force at all times to protect the obligee and the public, your dealer�s license could be revoked.

How Are Alabama Auto Dealer Bond Claims Paid?

As the principal, you are legally obligated to pay any claim that the surety finds to be valid. �But it�s rare for the principal to simply write out a check to the claimant. Because the surety has guaranteed the payment of valid claims, the surety typically pays a claim initially and is subsequently repaid by the principal. Be aware that if you fail to repay the surety for a claim paid on your behalf, the surety can take legal action against you.

How Much Does an Alabama Auto Dealer Bond Cost?

The surety will set a premium rate based on your credit worthiness. The biggest underwriting concern regarding an Alabama auto dealer bond is the risk that the principal won�t repay the surety readily for claims paid on the principal�s behalf. The principal�s personal credit score is the best way to gauge that risk.

With a high personal credit score, the risk to the surety is considered to be low, so the premium rate will be low. Conversely, a low credit score signals a higher risk level and warrants a higher premium rate.

The majority of applicants for a $50,000 Alabama auto dealer bond will qualify for a premium rate in the one to three percent range, for an annual premium somewhere between $500 and $1,500.