ACV facts & figures
Auto auctions are treasure troves of opportunities to secure high-quality, low-cost inventory for your business. You can sell new and used cars, trade-ins, off-lease cars, or any other used vehicles you don’t think will sell at your car dealership.
So do you need a license to get in on the action? The short answer is yes. If you plan to sell more than just a few vehicles a year, you need a dealer license. Below we’ll discuss the most common types of licenses, general requirements, applications, and the renewal process.
Types of Car Auction Licenses for Dealers
When it comes to car auction licenses, there are a few different types and they are not all created equal. The most common include:
Retail Dealer License: This type of license allows you to set up a business to sell cars to the public. You can own a dealership and sell cars directly to buyers. It can also include the option to sell at wholesale and private car auctions. We’ll go over some of the state requirements, such as location details, registration, and fees below.
Wholesale Dealer License: A wholesale dealer’s license lets you sell cars between businesses. Any business that has a wholesale license can auction cars including car dealers, wholesalers, rental car companies, and even banks.
How to Get a Dealer License for Car Auctions: 4 Essential Requirements
A dealer’s license will have the most requirements of the licenses, but it also allows for greater privileges. This license allows you to buy at a private or wholesale auction, own a dealership, and sell cars directly to buyers.
There is a lot to know about how to become a car dealer and specific requirements for a dealer’s license can vary by state. That said, most of the essential conditions are the same. The four primary requirements for a dealer auction license include:
1. Background check: You’ll have to pass a credit check and a background check to open your dealership. Having a great credit score will also help you to save money by lowering your initial interest on business credit lines and help you get better loan offers over time.
Your driver’s license record will also be inspected for tickets, especially for DUIs. You may even be asked to fill out a personal history document.
2. Establish a place of business: This term is used to describe any location where you run your business, like your office or car dealership. Location specifications can vary according to license type.
Applying for your dealer’s license will require a physical location with a lot (or warehouse), office, display area, correct zoning, signage, and more.
You may need to supply proof of lease or ownership with pictures of location requirements listed by the Department of Motor Vehicles (DMV). Some states (like California) might require a site visit before or after submitting your application for a dealership license.
3. Business registration and tax ID:
To submit your dealer license application, you'll also need to get a business license and pay a license fee. Business licenses are usually handled via a local government agency. Sometimes the licensing is done by the Secretary of State's Office, but the agency can go by different names in each state, county, city, or town.
You’ll want to carefully check your local guidelines, especially if you are tackling this step on your own. Using a lawyer or a business manager can help streamline getting a business license.
Once you have your business license, you’ll need to get a tax ID number from the IRS. This will be important for paying any employees and doing business with vendors (like wholesalers and auction houses). You’ll want to keep careful track of business expenses, income, sales tax, and any other info you’ll need to pay your taxes each year.
4. Insurance: To qualify for a dealer's license, you’ll need several different types of insurance policies that cover everything from your place of business to your inventory. At a minimum, you’ll need business insurance, inventory insurance, and dealer surety bonds.
Application Process and Costs for a Car Auction License
Once you’ve completed the steps above, you’ll need to file a paper or online application. You’ll apply via the DMV or state equivalent (RMV or Secretary of State). Make sure to have the following documents on hand to apply and complete your license requirements.
- Background check documentation including credit check
- Business License and Tax ID forms
- Proof of lease of ownership for your place of business
- Pictures of your required location elements or a state inspection document
- Proof of insurance including, business insurance, inventory insurance, and dealer surety bond
As usual, you’ll want to check your state’s requirements for any additional documentation you may need.
Car auction licenses, especially when opening a dealership can get pricey fast. When budgeting for your license, make sure to keep the following costs in mind.
- DMV dealer application fee
- Business licensing fee
- IRS Tax ID application fee
- Mortgage or rent payments
- Insurance premiums
- Flooring plan fees
Getting your license can be a high cost and a high reward. Keep in mind that you aren’t just getting auction access, you are setting up a long-term business.
Wholesale Dealer License
One of the many advantages to having a dealer’s license is that (depending on location) a wholesaling license is often included. So you may not have to go through the extra step of applying for a wholesale dealer license. Some states do require you to send a separate wholesale dealer’s license application via your local DMV. Luckily, you’ve already done the work, so getting your wholesale dealer license will be easy.
In addition to completing the steps above, there may be additional phases or fees in your area. Including dealer’s plates (tag fees), a floor plan or other financings, auto broker’s association registration, or even dealer occupational training courses. Some of the states with additional legal requirements include California, Colorado, New Jersey, New York, and Massachusetts.
Dealer License vs. Wholesale License: Which is right for you?
If you are new to selling used cars, maybe a retail dealer’s license isn’t for you. Perhaps, you want to focus solely on wholesale. Or, maybe you're still pondering how car auctions work. So, how do you decide which option is best for you? First, consider the business you want to build.
A wholesale dealer license allows you to sell cars between automotive businesses or to anyone with auction access. This form of license provides an opportunity to work directly with dealerships to help them acquire inventory or unload stock that isn’t as popular with their clients.
Wholesalers also play an important role in buying and fixing cars so dealerships can get vehicles that will sell fast without always having to do their repairs. Having enough cars on hand to sell during busy seasons is crucial for making a profit. Check out our post - Wholesaling Used Cars: The Ultimate Dealership Guide for more in-depth info.
A wholesale license can be a great option for dealers who are mechanically savvy and want to flip cars and resell them for a profit. The financial commitment can also be lower and the requirements for location often mean wholesalers may be able to work from private property or a home office. As a wholesaler, you can’t sell to the public, but you can still buy and sell cars to anyone who has access to wholesale auctions.
If you choose to get a wholesaler license, many of the steps will be similar to getting a dealer’s license and opening a dealership. However, you can potentially save costs on the property, employees, other insurance types, and more.
Ultimately, you’ll want to choose the right license for the business you are building. Learning more about how to buy a car at an auction and additional ways to get into dealer auctions could help decide which type of auction license is right for you.
Renewing your Car Auction License
Once you’ve gone through the process of getting your dealer auction license, you will likely need to renew it each year. Luckily, this process is easier than the first application. You won’t be starting from scratch and will already have most of what you need to renew your car auction license.
Most DMVs have a renewal form that allows you to apply for renewal with the same basic information from your previous license. If there are changes to your business, you will be able to update those in your renewal paperwork.
Renewals are a great time to reassess your financing and other costs. For example, you might want to shop around for a new bond quote to save costs on a dealer surety bond. You may also want to check to make sure your state hasn’t changed its occupational licensing requirements. It’s important to check for any relevant changes to the law that could affect your ability to renew.
If you are looking to make some changes or the requirements in your state have changed, you will want to get a head start. Some states are more flexible on when you file your license renewal, but many will have strict deadlines.
All the hard work you’ve previously put into your business will pay off when renewing. Not only will the process be easier, but most dealers will have less overhead and make more money after their first year.
Get into Auctions and Start Growing Your Business Today
Auto auctions are one of the fastest ways to start getting quality new and used cars and vehicles. So make sure you join ACV Auctions for quick access to the inventory that’s right for you.
Mar 31, 2023