Texas Auto Dealer License Guide

Learn how to become licensed as a Texas 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 Texas. 

What Are the Different Types of Texas Auto Dealer Licenses?

The Motor Vehicle Division of the Texas Department of Motor Vehicles issues several types of dealer licenses, each of which is associated with at least one General Distinguishing Number, or “GDN.” The GDN identifies a specific type of vehicle being sold as well as the dealership’s location. A dealer who will be selling more than one type of vehicle will need a GDN for each of them.

The most common dealer license is the independent dealer license, which permits the purchase, sale, or exchange of the type of used vehicle for which the GDN is issued—for example, used cars, used motorcycles, etc.  This article focuses on obtaining an independent dealer license for the retail sale of used cars only.

What Are the Steps in the Licensing Process?

Before applying for an independent dealer license, you’ll need to establish your dealership as a legal business entity and register it with the Secretary of State’s Office unless it’s a sole proprietorship or general partnership, which must be registered with your local County Clerk. You’ll also need to register with the IRS to obtain a Federal Employer Identification Number (FEIN).

Once you’ve accomplished these basic steps that apply to all types of businesses, you can start in with the tasks that are specific to obtaining an auto dealer license, including:

• Completing six hours of online pre-licensing training
• Establishing a permanent business location that meets all DMV and local zoning requirements
• Purchasing liability insurance to cover vehicles in inventory
• Purchasing Workers’ Compensation insurance I you will have employees
• Purchasing a two-year $50,000 auto dealer surety bond
• Paying the required licensing fee and dealer plate fees

You will use the Texas eLICENSING system to submit your dealer license application online. You will have to renew your license every two years.

Why is a Texas Auto Dealer Bond Required?

A Texas auto dealer bond is your pledge to do business in compliance with the laws governing auto sales in Texas or compensate the state or consumers for any financial loss caused by your noncompliance. For example, the state can file a claim against your bond to recover unpaid taxes or fees. And consumers who are harmed financially by an unlawful or unethical act (e.g., changing an odometer reading, fraudulently altering a title, or misrepresenting the condition of a vehicle) also have the right to file a claim for damages.

How Are Texas Auto Dealer Bond Claims Paid?

Of the three parties to a Texas auto dealer bond—the Texas DMV (the “obligee” requiring the bond), the dealer (the “principal” purchasing the bond), and the bond’s guarantor (the “surety”)—only the principal is legally obligated to pay valid claims. However, the surety typically will pay a claim initially, to be reimbursed by the principal for the resulting debt at a later date. Failing to repay that debt can result in the principal being sued by the surety.

How Much Does a Texas Auto Dealer Bond Cost?

Texas auto dealer bonds are sold for a premium that is calculated by multiplying the $50,000 bond amount by the premium rate assigned to the principal by the surety. The premium rate will reflect the surety’s assessment of the risk that the principal might not repay the surety for a claim paid on the principal’s behalf. That assessment is based largely on the principal’s personal credit core.

With good credit your premium rate is likely to be three percent or less. If your credit core is on the low side, your premium rate for a Teas auto dealer bond will be higher.