A car auction may seem like they are only for rare classic cars bought by high net-worth individuals. However, there are many different types of car auctions that exist, a good number of which are accessible and affordable to the general public. If you are interested in organizing your own car auction, there are some qualifications and licenses that need to be acquired first. To get a car auction license, it’s important to understand what they’re about, what they are, and how they work.
In this article, you will learn everything you need to know about obtaining a car auction dealer license from the Department of Motor Vehicles of your particular state. Topics covered will include what types of car auctions exist, what other licenses are required, each step for becoming a licensed car auctioneer, and what the benefits are of getting your car auction dealer license.
Something to keep in mind is that certain states may have different requirements than others. That means if you are a licensed dealer in Maine, you will need to visit the official DOL website for the state of Maine to find details for getting a car auction license in that state.
What is a Dealer License?
Much like any business is required to maintain a license to operate, obtaining a dealer license is also required in order to run any business involved in selling cars. Which means if you are intending to establish a car auction of your own, you must possess a dealer license in addition to having a car auction license.
There are a few different types of dealer licenses you can apply for, depending on what type of dealership you will be operating. Whether you are a retail dealer, a wholesale distributor, or both, there are different applications to submit to your local DMV. Let’s go over the details of what types of dealer licenses exist and how these types of licenses differentiate from each other.
Types of Car Dealer Licenses
There are three main auto dealer license types that are regulated and distributed by your state’s Department of Motor Vehicles. If you need a car dealer license, you can get a license in 30 days. Here are the types of car dealer licenses you need to know about:
- Wholesale car dealer: Otherwise known as a salvage car dealer, a wholesale car dealer can sell cars to other dealers, to authorized dismantlers, or at car auctions. In some states you are required to submit a separate application for the wholesale license and the car auction license. However, other states allow wholesalers to also participate without a separate license.
- New car dealer: This license permits the sale of new vehicles to the general public. To meet the requirements for a new car dealer license, you must have a lot of car dealership management experience and access to capital for your business. In certain states, the new dealer license permits the ability to sell used cars as well.
- Used car dealer: If you will be only selling used cars in a retail setting, then the user auto dealer license is needed. Similar to the other auto dealer licenses, a used dealer will need to periodically renew their license. In some states, the used dealer license grants wholesaler privileges as well.
Public Car Auctions vs Dealer Car Auctions
There are two different types of car auctions. Depending on which type you will operate, you may need to have the right kind of auction license in order to execute business legally. Since the two dealer auction types are very different from each other in terms of who participates, there is almost never any confusion between the two.
Public car auctions are attended by the general public who wish to bid on cars for their own personal use. In some cases the auctions may be for collectors of rare classic cars, and other auctions are hosted by local municipalities selling used cars for a good deal.
Dealer car auctions or private car auctions are restricted to only licensed car dealers. These transactions may include hundreds of vehicles at a time. This is how used car dealerships fill their inventory lots. Since this is a wholesale automobile transaction, a wholesale dealer license will be required.
Getting a Dealer License for Car Auctions
In order to participate in a private car auction, you will need to obtain a dealer license from the Department of Motor Vehicles in the state you are operating. This license is crucial to making sure your car auction is a legitimate and legal business activity, thus protecting you from harsh penalties or unwanted liabilities. These are the steps to getting a dealer license for car auctions:
Step 1: Contact Your Local Department of Licensing
To begin the process of getting your auction license, you will need to find your local Department of Licensing. Most local DOLs have their own website where they include information on requirements for getting a dealer license for car auctions. Each state may have different qualifications and fees associated with the application for a license.
Step 2: Make Sure You Meet the Requirements
In order to be approved for an auction license, the state DOL will require you to meet a series of requirements. You will need to register your business with the Secretary of State’s office, along with getting a sales and use tax registration from the Department of Revenue.
After that, you need to establish a place of business for your car auction. If you need space for a lot, which isn’t typically required for car auctions, then you will need to receive zoning approval for that lot.
All other requirements are to be fulfilled with the submission of your dealer application.
Step 3: Complete the Car Dealer License Application
After establishing your main business requirements for operating a car auction, you are ready to put together the final details in your dealer license application. From your local DOL’s webinar, you can download your car auction license application form. You will attach your proof of business documentation. This may include proof of insurance. Along with that documentation, you will also need to include a completed criminal background check which may include electronic fingerprints or a fingerprint card and other personal records.
Each state may have different fees that must be paid when filling out the application packet. To find out what your state’s application fee is for a car dealer license, visit the local DOL’s website.
Step 4: Purchase A Dealer Bond
To complete all of the requirements of a licensed car auctioneer, you will typically need to obtain a dealer surety bond and insurance. The surety bond will put you in compliance with your state’s laws that regulate the commercial sale of motor vehicles.
Step 5: Submit Your Application
After all previous steps are completed, you can finally submit your application to the DOL. The application can take two weeks or less to be approved. After receiving approval from the Department of Licensing, a certificate of completion will be mailed to you.
Dealer License vs Wholesale License
When going through the process of becoming licensed for a car auction, the type of operation you will be running will determine what kind of license you will apply for.
A dealer license will permit you to sell cars to the general public. This type of license is reserved only for those who are operating a public car auction, selling to people who will buy the cars for their own personal use.
A wholesale dealer license allows business owners to open a private car auction, selling many cars at a time to other licensed car dealers. Wholesalers will only sell cars between businesses licensed to sell cars in their respective state.
Benefits of Having a Car Dealer License
There are more benefits to being a licensed dealer than you might expect. These perks are good to know when you want to save money and build your business:
- Tax Benefits – You have the ability to write off car-related expenses, such as auto repairs or buying gas.
- Access to Car Auctions – As a main component to keeping your business profitable, you have access to buy cars in wholesale at private car auctions.
- Personal Gains (Starting a Car Dealership Business) – Since you can buy cars at a wholesale price, you can buy cars for yourself or loved ones at a price not marked up for retail.
The road to becoming an officially licensed car auction dealer is an important step to successfully operating a car auction business. Like most state licensing, you will need to periodically renew a dealer license to stay in legal operation. When it comes to taking the required car dealer exam for the DOL, Redline is here to put you on the path of success. You can hear from countless success stories of past Redline students, business owners that trusted us with completing their official licensing.
If you are in need of receiving the education you need for a car dealer license, reach out to Redline and get qualified today.