What is a Car Auction?
What are Dealer Car Auctions?
Why Participate in Dealer Car Auctions?
How do Dealer Car Auctions Work?
Where Can I Find Dealer Car Auctions?
What is an Auto Dealer License?
What is the Purpose of a Motor Vehicle Dealer License?
How Much Does it Cost for a Car Dealer License?
Types of Car Dealer Licenses for Car Auctions
How to Get Your Dealer License for Car Auctions
TLDR: When walking on a dealership lot, you've probably see a lot of used cars. Have you ever wondered where majority of the cars come from? Chances are, most of those vehicles were purchased at a steep discount from dealer car auctions. For most of us, buying used cars from these car auctions is a much better option than purchasing from other dealers. However, before you head to a car auction with loads of cash in your pocket, it is helpful to understand more about the different types of car auctions and the prerequisite to attend the different types of auctions.
This article aims to help you achieve two goals:
1. Understand car auction and its many benefits
2. Understand the steps it takes to become a licensed car dealer, which is required to attend dealer car auctions
A car auction is an event where vehicles are sold to the highest bidder. More often than not, the auctions are organized by car dealerships, auction houses, or government agencies to sell surplus cars or seized vehicles. There are many different types of car auctions, but most of them can be categorized into two types:
Dealer car auction is a specific type of private auction where only licensed car dealers are allowed to buy, sell or trade new and used vehicles. These auctions are typically organized by wholesale auto auction companies (i.e., ACV Auctions), who sell surplus or seized cars at a discount. As an auto dealer, dealer car auctions are a great way to source inventory at a cheap cost.
Affordable Price: Price of cars at a dealer car auction tend to be much more competitive than other places. Prices are on average 15%-20% lower than normal retail price, but this depends on market conditions.
Inventory Variety: Dealer auctions provide convenient access to a wide range of vehicles, including different makes, models and years.
Efficiency: Dealer auctions can be a time-efficient way to source vehicles, as multiple vehicles are often available for bidding in one location, and the process can be completed relatively quickly. This can save dealers time and effort compared to sourcing vehicles from individual sellers.
Exclusivity: Cars sold at dealer car auctions are only available to dealers. Sometimes, you can find great and exotic vehicles at these auctions.
Network and relationships: Dealer auctions can provide opportunities for dealers to network with other dealers, establish relationships with sellers, and learn about market trends. This can help dealers build their professional network and gain insights into the automotive industry.
At an in-person auction, prior to the start of the bidding, each vehicle to be auctioned is driven into the auction hall. Then, the auction participants will be given a few hours to inspect the vehicles up close. After the inspection period, the auctioneer presents each car on stage, describing its features to all the bidders. It is crucial to pay close attention to the auctioneer’s presentation because the statement of the presentation is a legally binding statement on the sale of the vehicle.
More often than not, you should expect multiple bids on the same vehicle and the price would probably go up. Bidding happens when you raise your hand with a catalog and the process goes on until you are the only bidder with the highest bid. That’s when the hammer will be rang, which indicates that you have won the final bid and the car is yours. Once you won the bid, you are obligated to follow through with the purchase at the final bid price. Not complying with this requirement could lead to possible penalties or legal consequences.
If you are new to car dealer auction, it is a good idea to participate in a dealer car auction as a member of the audience rather than the bidder. Being an audience and seeing how the auction works really helps you prepare for your career as an auction bidder.
There are many dealer-only car auctions. There are spontaneous live auctions or 24/7 online dealer auctions marketplaces. To find one near you, you can simply Google “auto dealer only auction near me”. Typically, you need to fill out an application online to register for the auctions. Below are some examples of dealer only auto auctions. We are not affiliated with any of them.
Many states require a motor vehicle dealer license to buy, sell or exchange new or used vehicles if you are registering a dealership and doing it professionally. In different states, there are different requirements when you need a dealer license. Usually, this requirement pertains to the number of cars sold in a year.
For example, the state of California requires anyone wanting to sell (or flip) even one car for profit to get a dealer license. On the other hand, in Texas, individuals can sell up to four vehicles per year without a dealer license if all the vehicles are titled in the names of the sellers before sell.
The dealer license ensures that the individuals licensed to sell, buy, and trade cars professionally understand the rules and regulations of the auto dealer industry in their states and follow these rules when conducting business.
In other words, the license is used to filter out unqualified prospective auto dealers and protect the consumers and the general public against potential fraudulent practice of the motor vehicle dealers.
The cost of a Car Dealer License varies across states. A motor vehicle dealer license generally costs close to $1,200. For example, it costs $1800 for a used car dealer license in Texas and $1,000 for a motor vehicle dealer license in California.
The main one-time costs of getting a dealer license includes the following:
The variable cost of getting a car dealer license is mainly securing a display lot, which is required for retail/independent dealers in many states but not wholesale dealers.
There are many different types of car dealerships. Some dealership requires a license but some don't. Whether you need a license or not depends on the type of vehicles you intend to sell (used, new, salvage, motor vehicles versus RV, etc.), the nature of your dealership (wholesale, independent, etc.), and state regulations where your dealership operates. Below are the main categories of dealerships.
Independent Dealer: these are non-franchised independent dealers that sell only used cars. This type of dealer typically need a separate independent / used vehicle dealer license. Almost all 50 states require a dealer license for this type of dealer
Franchise Dealer: this type of dealership is established through a franchise agreement with a vehicle manufacturer (i.e. Ford, Honda). Franchise dealers mainly sell new cars from the vehicle manufacturers but they can also sell some used cars on the side. Some states, such as California, have one type of license that cover both independent dealers and franchise dealers. Some other states, such as Texas, don't require a license for franchise dealers
Wholesale Dealer: this type of dealer sells used cars to other dealers. They don't work with end consumers/car buyers directly. Most states don't have a specific license category for wholesalers; they can obtain the same used car dealer license as Independent Used Vehicle Dealer. However, some states, such as California, require wholesalers to have a specific type of "wholesale dealer license"
Wholesale Motor Vehicle Auction Dealer: Wholesale auction dealers sell used car only at car auctions. Some state, such as Colorado, require a specific license for these dealers. For most of the other states, they can simply obtain the same license as the most common dealer license.
Salvage Dealer: these dealers are engaged in the business of buying, selling, repairing, or rebuilding salvage motor vehicles and non-repairable motor vehicles. A few states, such as Georgia and Florida, have a specific license for salvage dealers
Recreational Vehicle Dealer (RV/Trailer/Motorsports): these dealer sell recreational vehicles such as trailers, motorcycles, RVs, and all-terrain vehicles. A few states require a separate license for this type of dealers, such as Florida and New Mexico
Note that below is a summary of the most common steps for getting a dealer license in every state. Because each state may have a slightly different process, we try our best to pick out the most common steps.
1. Decide the Type of Auto Dealer License You Need
Typically, prospective dealers are most unsure about whether to obtain a wholesaler license or retail dealer (independent or franchise) license. If you don't intend to sell cars to the public and only want to use the license to attend dealer only auctions, wholesaler license is a good option because it is easier and cheaper to obtain. However, if the above does not apply to you, consider the business you want to build.
Wholesalers work directly with other dealers to acquire more cars for their inventory or unload stock that are not popular among their customers. Sometimes, wholesalers also need to buy and fixed cars and then provide the refurbished cars to the dealerships. Given that wholesalers work directly with other dealers, having a strong network of dealers is crucial to being a successful wholesale dealer. In addition, one of the advantage of a wholesale dealer is that the cost of starting their business is lower because no dealer lot is required and insurance cost is lower.
On the other hand, retail dealers work directly with car buyers. In this case, having good marketing channel to reach average car buyers and being able to educate them on cars are crucial for the success of a retail dealers. While running a successful retail operation is highly profitable, it is also much more expensive to start than wholesaler because a display lot is required and insurance costs are higher.
2. Complete an Online or In-Person Dealer Education Course, Subject to State Requirements
3. Take and Pass a Dealer Examination (required by some states)
4. Set Up Your Business
5. Obtain Tax Permit or Sales Tax Number From State Tax Department
6. Lease a Business Building and Display Lot with Sufficient Space
7. Install a Sign for Your Dealership
8. Buy Garage Liability Insurance (required by some states)
9. Obtain an Auto Dealer Bond
10. Pass Background Check Through Fingerprint Scanning
11. Submit Your Completed Dealer Application Online or Through the Mail
12. Schedule and Accommodate a Site Visit by a DMV Inspector
You will eventually receive your permanent license in the mail or from the DMV office. Note that the information above is a summary of the dealer licensing process across the country. Every state has its own peculiarities that this article can't explore in detail.