Get a Dealer License For $1,400
Did you know that your budget may define the type of car dealer license you can get in California? Continue reading and we will show you how to start your business with a budget under $1,400.
What Types of Car Dealer Licenses are in California?
First and foremost, let’s start reviewing what are the options you have. All vehicle dealers in California are licensed through the DMV (California Department of Motor Vehicles). The DMV issues four types of vehicle dealer licenses:
- New/Used Franchise Car Dealer: is allowed to sell new or used vehicles directly to the public and/or other dealers. You can think of this as the franchise dealer such as Ford, GMC, Honda or Toyota. Interested applicants must first get franchise approval before obtaining a license through DMV.
- Used Car Dealer: as its names imply, is allowed to sell used vehicles to the public and/or other dealers.
- Auto broker: formally speaking, brokers are not ‘dealers’ nevertheless they need a license to assist, negotiate, or arrange purchases of new or used vehicles for individuals. This endorsement is only available to used car dealer licensees.
- Wholesale-only Car Dealer: this license only allows you to sell vehicles to other licensed dealers, auctions or licensed entities (such as junkyards) in other words, you cannot sell vehicles directly to the public.
The first two licenses are also known as ‘retail’ car dealers since they allow selling vehicles to the public. Our focus on this article will be comparing the used car dealer and wholesale-only car dealer licenses.
Deciding Between California Wholesale Only or Retail Auto Dealer Licenses
The ability to sell vehicles to the public is without any doubt a big plus for used retail auto dealers. However, that advantage comes at a cost. Literally. Below you will encounter a summary of the main costs associated with retail and wholesale car dealers.
The California DMV requires you to purchase a surety bond to get licensed as an auto dealer. Depending on the type of dealer you have to purchase one of the following bonds:
- A $50,000 bond if you are applying for a used retail auto dealer license (DMV form OL 25)
- A $10,000 bond in case you are opting to obtain a license for a motorcycle dealer, motorcycle lessor-retailer, all-terrain vehicle dealer, or wholesale-only dealer selling less than 25 vehicles a year (DMV form OL 25B)
Before you start worrying about the cost of the surety bond you should know that you will end up paying only a small percentage of its face value. The exact percentage will depend on your credit score and how many years of experience you have in the automotive industry.
For your peace of mind, there are literally dozens of institutions offering auto dealer bonds at low rates starting at $500 for retail dealers and $100 for the rest including wholesale-only dealers. Realistically speaking though, you should expect to pay between $1500-3000 a year for retail dealerships and $300-500 a year for wholesale-only dealers.
Insurance cost is arguably one of the trickiest to estimate. Since most startups count with a limited budget they usually cut down costs in certain areas, one of them is insurance. Nevertheless, it’s crucial to keep in mind that running a dealer is very complex and may include specific aspects that may require additional insurance coverage. A perfect example is retail dealers offering maintenance & repair services.
To give you an idea about how intricate dealer insurances could be, below are listed a few kinds of coverages that you may need:
- Garage liability
- Inventory (open lot coverage)
- Garage keepers legal liability
- Personal injury
- Truth-in-lending errors and omissions
- Odometer errors and omissions
- Medical payment coverage
- Fire legal coverage
- Building coverage
- Collision coverage
The list goes on and on. Small to medium-sized retail dealers insurance may cost around $2,800 a year (or $233 monthly). Bigger dealerships, as well as smaller ones with many services, can easily pay well above that amount.
In that regard, wholesale car dealers have a huge advantage over their retail counterparts. Since you can start your dealer from home, their simplicity decreases the associated risk of operation and thus, the insurance policy will be considerably cheaper.
City Business License
Business license cost will depend on the jurisdiction where you are opening the dealership. Most cities charge between $75-$200 for small business licenses. Fortunately, this is one of the smallest fees to start a new car dealer.
California DMV fees
Regardless of the used car dealership permit you are applying for, you will need to pay the following fees:
Retail Used dealer & wholesale-only dealers (you can check updated fees directly on DMV form OL 248U, Used Dealer, Dealer-Wholesale Only Application Checklist)
- Livescan fingerprinting fees $42 for each person submitting ADM 1316 fingerprint card
- Application licensing fee $175
- Brach fee $70 each (if applicable)
- Dealer plates autos $87/each, motorcycles $89/each (plus county fees)
- Autobroker endorsement fee $150 (not applicable for wholesale only license)
- Family support program $1
- Examination $16
Last but not least you may incur in additional costs, some of them are listed below:
- DMV Pre-Licensing Certificate. This course is a live in-person seminar designed to help aspiring dealer with the application process, cover rules and regulations and best practices to succeed as a used car dealer. Courses are offered through Redline Dealer Education for $120.
- Fictitious business registration. You may opt to add a ‘dba’ (doing business as) and you can file here for all counties in California. An example of needing this would be: John Doe LLC dba Doe Auto Sales. The clerk recorder’s office will charge $40-50 for filing a dba.
- Business location. This cost may vary greatly depending on the size of the property and its location. For your reference, a small dealer lot may easily cost you $1,200+ a month. Once again, wholesale dealers have an edge since they can be operated from home.
- Inventory. How many vehicles will you start with? This is an important question since retail car dealers will need bigger inventories than wholesalers.
- Miscellaneous costs. There are many other costs to consider such as furniture, dealer management platforms, advertising, website design, shop equipment (in case you plan to offer repair services), legal consultations, accountant fees, and more. As usual, the bigger the dealer the higher these costs might be.
Which to Choose?
What is the ideal used car dealer license? From a cost perspective, wholesale-only car dealers have a clear advantage closely related to its simpler infrastructure and start up costs as low as $1,400. The possibility of getting a dealer license without a car lot is appealing too, no doubt. Yet, the inability to sell vehicles directly to the public may pose a major obstacle to people without experience in the automotive industry or without strong networking with other dealers and auto brokers. Our suggestion is evaluating all aspects before deciding which option better fit your needs and goals.