Surety Bond Encyclopedia

NEW Motor Vehicle Dealer ($50,000) Bond - Statewide in Tennessee

Brief Summary

A franchised Tennessee dealership cannot get its license without this $50,000 bond, but the bond is the easy part of the file. The harder items are the manufacturer's letter confirming your franchise and the labor rate statement. Get the bond written for the right two-year window on the Commission's IN-1316 form and it drops into the application without a second trip.

Tenn. Code Ann. 55-17-111(g) requires every motor vehicle dealer applying for or renewing a license with the Tennessee Motor Vehicle Commission to show a surety bond of at least $50,000. A new car dealer also files a letter from the manufacturer or distributor confirming the franchise and naming each line-make. The Commission asks for a corporate surety bond on form IN-1316 that runs two consecutive years, and the surety must give 60 days' notice before cancelling.

We can help with all Tennessee bonds!

How to Apply for a NEW Motor Vehicle Dealer ($50,000) Bond:

Obtain the manufacturer or distributor letter confirming your franchise and listing each line-make.
Prepare the sworn statement of retail and warranty labor rates.
Have the surety write the $50,000 bond on form IN-1316 for two consecutive years, starting in the month your license is expected to issue.
Sign the bond as principal owner, have it notarized, and attach the surety's power of attorney.
Submit the bond with your application through the Commission's online licensing system.
Renew the bond with each biennial license renewal.

Detailed Information About the Tennessee NEW Motor Vehicle Dealer ($50,000) Bond:

What a franchised applicant usually misses

The bond amount is the same $50,000 that every Tennessee motor vehicle dealer posts. What sets a new car dealer apart is the paperwork around it. The Motor Vehicle Commission's dealer license page requires a letter of acknowledgment from the manufacturer or distributor confirming the award of a franchise agreement, and the letter must identify the specific line-makes you will sell. Franchised applicants also submit a sworn statement of the labor rate charged to retail customers and the rate charged to the manufacturer for warranty repairs. Any later change in labor rates must be reported to the Commission in writing within 10 days.

The Commission's page lists a $600 initial application fee and a further $600 per line-make for each franchise dealer.

What the bond actually covers

Tennessee's dealer bond is narrower than many people expect. Under Tenn. Code Ann. 55-17-111(g) and the IN-1316 bond form, it protects any person who suffers a loss because the dealer did not pay a retail customer's prepaid title, registration or related fees or taxes, or did not deliver a valid title free of prior owners' interests and liens. The surety's aggregate liability to everyone is capped at the bond amount.

Term and form

The Commission asks for a $50,000 corporate surety bond signed by the principal owners, issued for two consecutive years, starting in the month the license is expected to issue and ending on the last day of that month two years later. Tennessee dealer licenses are biennial, so the bond tracks the license. Rule 0960-01-.22 requires the bond to stay in force as long as you are licensed, and the surety must give the Commission 60 days' notice of cancellation. A letter of credit is not accepted in place of the bond. The statute does allow the Commission to accept a certificate of deposit as collateral instead.

Eligibility and Requirements for a Tennessee NEW Motor Vehicle Dealer ($50,000) Bond:

Surety bond of at least $50,000 under Tenn. Code Ann. 55-17-111(g).
Tennessee Motor Vehicle Commission dealer bond form IN-1316 with power of attorney attached.
Franchise acknowledgment letter from each manufacturer or distributor.
Certificate of liability insurance with at least $300,000 per occurrence.
At least one licensed motor vehicle salesperson employed by the dealership.

Tennessee NEW Motor Vehicle Dealer ($50,000) Bond FAQs:

Is the bond for a new car dealer larger than for a used dealer?

No. Tenn. Code Ann. 55-17-111(g) sets the same minimum of $50,000 for every motor vehicle dealer. The difference for a new car dealer is the franchise acknowledgment letter, the labor rate statement and the per line-make fee.

How long should the bond run?

The Commission asks for a bond issued for two consecutive years, beginning in the month your license is expected to issue and ending on the last day of that month two years later.

Can I use a letter of credit instead?

No. The statute says a letter of credit is not satisfactory evidence of the bond. The Commission may allow a certificate of deposit with a face value equal to the bond amount as collateral.

Who can make a claim on the bond?

Any person who loses money because the dealer did not pay a retail customer's prepaid title, registration or related fees or taxes, or did not deliver a clear title with the vehicle. Total payouts cannot exceed the bond amount.

Do I need a separate bond for each line-make?

The statute requires a bond with the license, and the per line-make charge on the Commission's page is a fee, not a bond. If you have more than one place of business, each needs its own license, so ask the Commission how it wants the bond filed for each location.