Iowa Auto Dealer License Guide

Learn how to become licensed as an Iowa 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 Iowa. 

What Are the Different Types of Iowa Auto Dealer Licenses?

 Iowa’s Department of Transportation, Office of Vehicle & Motor Carrier Services, issues a number of different types of motor vehicle dealer licenses, categorized as:

• Retail
• Restricted
• Manufacturer/Distributor or Wholesaler
• Leasing
• Recycler
• Towable RV
• Special Equipment
• Mobile Home

This article focuses on the most common license type, retailer, which is for dealers selling new or used vehicles to retail customers.

What Are the Steps in the Licensing Process?

Once you have established your dealership as a legal business entity (such as a sole proprietorship, partnership, LLC, or corporation), the licensing process involves:

• Securing a permanent business location and obtaining local zoning approval
• Purchasing liability insurance to cover all vehicles in inventory
• Completing an 8-hour pre-licensing training course (used vehicle dealers only)
• Purchasing a $75,000 Iowa auto dealer bond
• Scheduling an inspection of the business location by the Bureau of Investigation and Identity Protection
• Completing the application and submitting it, together with all required supporting documentation and payment of the license fee (currently $70) and dealer plate fees to DOT, Office of Vehicle and Motor Carrier Services.

An Iowa auto dealer license is good for two years and expires on December 31 of each even-numbered year.

Why is an Iowa Auto Dealer Bond Required?

DOT requires the purchase of an Iowa auto dealer bond as part of the licensing process to help maintain the integrity of the state’s auto dealing industry, and provide financial protection for the state and the public. There are two aspects to this protective function of an Iowa auto dealer bond. First, the bond is the dealer’s guarantee to abide by all laws and rules regulating the operations of auto dealers, including paying taxes and fees owed to the state. Second, if the dealer fails to live up to that guarantee and causes financial harm to the state or a consumer, the bond ensures that funds will be available to compensate the injured party.

How Are Iowa Auto Dealer Bond Claims Paid?

The terms of an Iowa auto dealer bond legally obligate the dealer (known as the bond’s “principal”) to pay all valid claims against the bond. The two other parties to the legally binding surety bond agreement—DOT (the bond’s “obligee”) and the bond’s guarantor (the “surety”)—are indemnified against liability for damages caused by the principal’s unlawful or unethical business practices.

However, having guaranteed the payment of claims, the surety typically will pay a claim initially and then collect reimbursement from the principal. A principal who fails to reimburse the surety can be subjected to legal action by the surety.

How Much Does an Iowa Auto Dealer Bond Cost?

The premium for an Iowa auto dealer bond is the product of two factors: the $75,000 bond amount and the premium rate set by the surety based on an assessment of the risk of not being repaid for claims paid on the principal’s behalf. That risk assessment is based largely on the principal’s personal credit score.

A high credit score gives the surety confidence that the principal will provide prompt reimbursement for claims paid on the principal’s behalf. If the risk is low, then the premium rate should be low as well (as little as one percent or even less). The reverse is also true. A low credit score suggests a higher level of risk and warrants a higher premium rate (up to ten percent and perhaps higher).