How Do I Get a License to Buy Cars at Auctions? – J.D. PowerMay 12, 2022
Pass any used car dealership and, chances are, the majority of the vehicles parked on the lot came from an auction, where the dealer potentially paid relatively little for a car she hopes to resell for a tidy profit. For many of us, bypassing those dealer markups and buying a used car at auction ourselves sounds like a better plan. But, before heading off to the nearest auction with a wad of cash in your pocket, it’s helpful to understand the different types of car auctions, as well as the rules and requirements associated with each.
As the name implies, a public car auction is open to almost anyone with money and a signature. These include fleet sales from local municipalities, larger governmental agencies, individual dealerships, those Mecum and Barrett-Jackson events you might’ve seen on television, and most of the vehicles offered on websites like eBay.
Dealer (or private) auctions are restricted to licensed car dealers. Unlike the local public auction, where you might be able to pick up a decommissioned patrol unit or a bright orange pickup from the highway department, dealer auctions avail buyers to hundreds or thousands of vehicles. They include automakers’ lease returns, low-mileage models from major rental companies, and those cars and trucks that other dealers couldn’t sell quickly.
If you want an opportunity to bid against the dealers, you’ll need a license to buy cars at auction.
First on your to-do list should be a visit to your state’s Department of Motor Vehicles (DMV) website, where you’ll find specific rules and regulations. These vary by state but usually require submitting an application answering questions about you and your business, along with an application fee that can range from fifty to several hundred dollars. You may also need to provide a detailed business plan, a business license, and tax or employer identification numbers necessary to process customer-paid sales tax or employee income taxes.
Unfortunately, the list doesn’t stop there, as most states also require proof of insurance for the business and any inventory, a fingerprint card to be used for a background check, as well as a purchase and sale agreement or signed lease for your business’s location. Of course, placement of your dealership must abide by all local zoning laws and, in some instances, meet requirements for square footage, display space, equipped and operational service bays, and signage. A state representative may request an in-person visit to verify you’ve met all requirements.
Anyone wishing to secure a dealer license will also need a surety bond. Simply put, this is an insurance policy that protects consumers if your dealership commits fraud or otherwise fails to live up to its financial obligations. The bond value often depends on the types and number of vehicles sold, but $25,000-$50,000 is typical. You must fully pay a small percentage of that before a state considers your application complete.
Those are just some of the common requirements. Depending on your location, you may also pay for dealer plate (tag) fees, licensing fees (separate from application fees), or auto broker and New Motor Vehicle Board fees (we’re looking at you, California). Interestingly, Colorado goes so far as to require a minimum net worth and credit score, and a passing grade from a dealer training course is mandatory in Missouri and Washington D.C.
Obtaining a dealer license can be a time-consuming and expensive endeavor, but those who do so gain access to a bounty of vehicles that may serve as the basis of a profitable business.
With that said, keep in mind that cars bought at dealer auction are also subject to extra auction fees and transport costs, so that low hammer price isn’t entirely accurate. And, while sellers are required to disclose significant issues (salvage title, Lemon Law buyback, frame damage), that seemingly pristine late-model SUV quickly rolling across the auction block may be hiding a host of costly gremlins.
As with all auction vehicles, it's best to bid with a buyer beware mentality.
Real insights from real owners
© 2022 J.D.Power. All rights reserved.
© 2019 J.D.Power. All rights reserved.