How to Get a 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

What is a Car Auction? 

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: 

1. Private auctions: exclusively available to a chosen group of buyers and sellers, often through invitation-only access
2. Public auctions: accessible to anyone interested in participating in the bid. However, an entrance fee may be charged

What are Dealer Car Auctions? 

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.

Why Participate in Dealer Car Auctions? 

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.

How do Dealer Car Auctions Work? 

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.

Where Can I Find Dealer Car Auctions? 

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.

• Adesa is a wholesale vehicle auction solution to professional buyers and sellers  
• South Bay Auto Auction is a dealer only auto auction located in California
• Alliance Auto Auction is a growing family of auto auctions providing vehicle remarketing services to wholesale dealers 
• AutoNation Dealer Auto Auction Los Angeles is held every Friday starting at 9am
• ACV Auctions is an online full-service dealer car auction on which you can sign up to buy, sell and trade cars

What is an Auto Dealer License? 

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. 

What is the Purpose of a Motor Vehicle Dealer License? 

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.

How Much Does it Cost for a Car Dealer License? 

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: 

• Online dealer licensing probably costs up to $150
• Business setup and secretary of state registration can cost up to $500
• Background check costs $50
• Surety bond costs anywhere from $350 - $1,000 depending on the state you operate in and your credit history
• Application fee for a license costs anywhere from $200 to $500

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.

Types of Car Dealer Licenses for Car Auctions

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

How to Get Your Dealer License for Car Auctions

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

• Typically, this is a fixed hour of training where you will learn the dealership fundamentals, such as rules & regulations and steps to become a dealer in your state
• After you finish the training, you will receive a certificate of completion, which you need for the application process

3. Take and Pass a Dealer Examination (required by some states)

• Some state, such as California, has a multiple-choice test that applicants have to pass in order to obtain their license
• The test focuses on the materials you learned from your dealer education course in step 2

4. Set Up Your Business

• Decide on the type of business you want to set up – corporation, LLC, partnership or sole proprietorship.
• Name Your Business 
• Register your business with the IRS and obtain a FEIN (federal employer identification number)
• Register your business with your local secretary of state or county. Each state has their own process and instructions
• Some states, such as California, require you to set up a business banking account using the dealership's registered name

5. Obtain Tax Permit or Sales Tax Number From State Tax Department

• States such as California and Florida require dealers to obtain a permit or tax number
• This permit ensures that the dealers can collect sales tax from customers and then remit it to the local government as required by law
• Typically you can obtain this tax permit / sales tax number from the Department of Revenue of your state

6. Lease a Business Building and Display Lot with Sufficient Space

• A permanent non-residential location for your business is required.
• For many states, a display lot of a particular size (i.e., fit 5 cars) is also required for retail dealers. A Display lot is not required for wholesale dealers

7. Install a Sign for Your Dealership

• Most states require your dealership to display a sign of a certain size that states the name of your dealership and your hours of operations
• The sign also needs to be visible from the road

8. Buy Garage Liability Insurance (required by some states)

• Some states, such as Florida, require dealers to buy garage liability insurance
• Garage liability insurance provides coverage for bodily injury and property damage occurring on the business’s premises and liability arising from accidents involving the business vehicles

9. Obtain an Auto Dealer Bond

• An auto dealer bond is a financial guarantee by the surety (insurance company) toward the obligee (Department of Motor Vehicle of the specific state) that the principal (auto dealer) won’t violate rules and regulations governing the auto dealer industry
• Different state has different surety bond requirements. California has two bonds. The state has a $50k bond for for retail dealers and a 10k bond for wholesale dealers; Florida has one 25k bond for all dealers

10. Pass Background Check Through Fingerprint Scanning 

• You often need to schedule a fingerprinting appointment to check for any criminal history

11. Submit Your Completed Dealer Application Online or Through the Mail

• Depending on the states, some states, such as Texas, allow you to submit all applications through their e-licensing site. Other states may ask you to submit your application in hard copies through the mail

12. Schedule and Accommodate a Site Visit by a DMV Inspector

• Once your application has been reviewed and approved, the last step is to schedule and accommodate a site visit by an inspector from your local DMV office
• The purpose of this site visit is to inspect your business location, display lot and sign and make sure they fulfill the state requirements. If they do, the DMV inspector will typically give you a temporary license

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.