Motor Vehicle Dealer Bonds

October 2, 2009

Merchants Underwriting Unchanged

Motor vehicle dealers have become the symbol in the United States for our struggling economic times. These businesses affect so many people both in the products that they sell and the economic engine they drive. Recently, motor vehicle dealers have faced many challenges.

 
In many states, dealers need to be bonded to conduct business. These bonds protect the public from fraudulent practices and will guarantee to the state that dealerships will pay their taxes as well as a variety of other things. In times like these, sureties earn their premiums by underwriting and screening these dealers and paying claims on the ones that aren’t able to make it this economy.

Chrysler has closed many of its franchises which has forced owners of these dealerships to convert to used car dealerships or to go out of business entirely. GM will continue to close dealerships in the near term. The loss of these dealerships is unfortunate, however, in the longer term we believe this will make the existing dealerships stronger than they have been in the past.    

We have seen sureties in recent times take a dim view of these bonds. Some have discontinued writing them all together while others have tightened their

underwriting stance. Merchants Bonding Company’s underwriting remains largely unchanged in these tough times. We continue to pursue this business as we always have. In many states, we will request financial statements, business and personal indemnity and a credit check. In a few states, we will underwrite them on credit-only and business and personal indemnity.

Our philosophy continues to be consistent for the long term. Merchants Bonding Company continues to be a stable source for bonds even in tough economic times.