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Georgia Proposing To Increase Dealer Surety Bond
By: Michael Weisbrot
The state shut down a bill in 2004 to increase the dealer surety bond amount
from $20,000 to $50,000. The argument for the increase is to better protect
consumers purchasing vehicles from fraud. The argument against the increase is
from the dealers trying to do what they can to keep their costs down, citing
some smaller shops may go belly up. Both sides of the argument bring up valid
points, both sides also stretch the truth to make their points. The article that
brought this to my attention, Why Georgia can be a bad place to buy a car told
both sides of the story, but had some incorrect information as well.
The article told a story of a couple purchasing a vehilce, having it taken away
and being stuck with the bill. This type of fraud is exactly what surety bonds
are required for. However, if the bond liability is only $20,000 and the car you
are purchasing is more then you are out of luck. If the car you purchased was
only $10,000, but someone already was paid the full $20,000 in a previous claim,
you are are also out of luck. I think the reasoning for a larger bond
requirement is quite obvious. An increased bond would also make Georgia car
buyers more comfortable buying their vehicle in the state. The current GA car
dealer market is getting a bad reputation, just take a look at the title of the
article I am writing about!
The article also stated that State Representative Alan Powell, opposed the
increase to the current Georgia dealer bond requirement. Powell is owner of
Highway 77 Auto Sales and feels the increase could put many mom and pop shops
out of business. The article asserted that the increase would only cost dealers
a couple hundred dollars extra every 2 years, or about .5% of the bond amount
per year. This statement could not be farther from the truth. The current surety
bond market is extremely conservative. Average rates for dealers with good
credit are roughly 2-3% per year. Rates for dealers with credit problems are
closer to 15% per year. In other words the cost to the dealers would be 4 to 30
times the amount the articles states.
The current bond market is particularly hard on auto dealers, as they have more
credit issues than other business owners. This has nothing to do with dealers
being irresponsible people, but rather the fact they must often use their
personal lines of credit to purchase vehicles. If business is slow they have
late payments and their credit scores plummit.
Whether you decide to increase the bond or leave as is, people will be effected.
In the end, I too will have to agree that the increase is a must for the good of
the citizens of Georgia, as well as the dealers. The cost of vehicles are up
from when the bond requirement was originally made. The bond amount is no longer
fullfilling the needs of why the state required it in the first place.
About the Author:
Michael Weisbrot is Vice-President of JW Bond Consultants, Inc. He specializes
in commercial surety bonds. http://www.jwsuretybonds.com |
