Virginia Auto Dealer License Guide

Learn how to become licensed as a Virginia 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 Virginia. 

What Are the Different Types of Virginia Auto Dealer Licenses?

Virginia’s Motor Vehicle Dealer Board, part of the Department of Motor Vehicles, issues dealer licenses in two main categories: independent dealer-operator and franchise dealer-operator. The most common license and the focus of this article is the independent dealer-operator license to sell used motor vehicles to consumers (not to other dealers).

What Are the Steps in the Licensing Process?

Before submitting an application for a Virginia dealer-operator license, you’ll need to:

• Obtain a Federal Employer Identification Number (FEIN) from the Internal Revenue Service.
• Secure a permanent business location that complies with local zoning requirements.
• Complete the two days of pre-licensing education provided by the Virginia Community College system and the Virginia Independent Automobile Dealers Association (VIADA).
• Achieve a passing grade on the dealer-operator portion of the Dealer-Operator and Salesperson’s Test (offered at any DMV Customer Service Center).
• Purchase liability insurance for each dealer plate you order.
• If you plan to hire employees, purchase Workers’ Compensation insurance.

Once you have done all of the above, complete the application and other forms included in the New Dealer Packet and submit the packet, all supporting documents, and payment of fees to any DMV Service Center or the main DMV office.

Within 30 days of submitting your New Dealer Packet, you must purchase a $50,000 Virginia auto dealer bond and submit it to DMV. The bond must remain in force for three years after you have received your initial dealer license.

Why is a Virginia Auto Dealer Bond Required?

A Virginia auto dealer bond serves two main purposes:

• It is the dealer’s guarantee to comply with all applicable laws and regulations.
• It also guarantees that the principal will compensate those who incur financial losses as a result of the dealer’s noncompliance.

These guarantees protect both the Commonwealth of Virginia and consumers. The bond provides a way for DMV (the “obligee” requiring the purchase of the bond) to recover unpaid taxes and fees owed by the dealer (referred to as the bond’s “principal”). 

Consumers who have experienced a loss due to the principal’s noncompliance with the terms of the surety bond agreement also can file a claim for damages. The most common infractions by used auto dealers include fraudulently altering a title, tampering with an odometer, and concealing or falsifying relevant information about a vehicle’s history and condition.

How Are Virginia Auto Dealer Bond Claims Paid?

Of the three parties to a Virginia auto dealer bond—the obligee, the principal, and the bond’s guarantor (known as the “surety”), only the principal has a legal obligation to pay valid claims. Both the obligee and the surety are indemnified against liability for damages caused by the principal.

However, the surety has guaranteed the payment of claims and therefore typically will pay a claim on the principal’s behalf and then be repaid by the principal. A principal who fails to repay that debt can be subject to legal action by the surety.

How Much Does a Virginia Auto Dealer Bond Cost?

Virginia auto dealer bonds are sold for an annual premium that is the product of multiplying the $50,000 bond amount by the premium rate established for the principal by the surety. The premium rate will reflect the underwriters’ assessment of the risk that the principal will incur claims and not repay the surety for having paid them on the principal’s behalf. That assessment is based largely on the principal’s personal credit score.

With good credit, which suggests a low risk to the surety, the average premium rate falls in the range of one to three percent. The premium rate for a principal with poor credit will be higher.