Buying and selling cars can be a profitable venture. In 2023 alone, American auto dealers generated $1.2 trillion in light-vehicle sales and $140 billion in services and parts. If you want a piece of this ever-increasing pie, you’ll need an auto dealer license.
Obtaining your auto dealer license allows you to operate legally and optimize your profits. The specific licensing process varies by state, but the general requirements include purchasing a surety bond, submitting an application, and staying compliant.
Below, we’ll outline the key steps in securing an auto dealer license. We’ll also offer some helpful compliance tips so you stay on the right side of regulation.
You don’t necessarily need an auto dealer license to sell a few cars from your personal collection. Most states have low-volume seller exceptions for these situations.
However, if you plan to sell a large volume of cars per year for profit or open a car dealership, you’ll need an up-to-date auto dealer license. The exact number of sales varies by state, but a common threshold is selling five or more vehicles in a 12-month period.
Every state’s auto dealer license requirements vary slightly. For example, in Texas, you may also need to apply for a General Distinguishing Number (GDN) in addition to your standard auto dealer license. To ensure a smoother application process, check with your state’s Department of Motor Vehicles (DMV) or equivalent agency and review its licensing guidelines, forms, and fees.
After determining whether you need an auto dealer license, the next step is identifying the right type. Different licenses apply to different types of sales. Some of the most common auto dealer licenses include:
When selecting your license type, carefully consider your business goals and target market. Some auto dealer ventures come with higher overhead costs or provide greater profit potential than others. By researching your local market, you can determine which option aligns best with your goals and budget.
The next step is to establish a legal business entity. Depending on your goals and tax preferences, you can choose to form a sole proprietorship, limited liability company (LLC), or corporation.
After that, you must apply for an Employer Identification Number (EIN) from the IRS to handle payroll and taxes and register for any necessary state and local business permits.
In most states, auto dealers must rent or purchase a physical business location with a display lot. When shopping around for potential locations, make sure the properties have appropriate zoning approvals from local authorities.
Another key requirement for obtaining your auto dealer license is securing an auto dealer bond. This surety bond protects consumers from potential fraud or unethical business practices.
The required bond amounts vary by state. For example, California may require a $50,000 bond, while Florida may only require $35,000.
You can determine your required bond amount by consulting with a surety bond provider, like BOSS Bonds. Our surety specialists can match you with the right motor vehicle dealer bond for your needs and goals.
Certain states, like Florida and California, require auto dealers to take a pre-licensing course and pass an exam that covers laws and regulations related to the automotive industry. Completing this training can set you up for success once you start running your auto dealership.
After completing the preliminary requirements, you can fill out your state’s auto dealer license application. During this process, you’ll need to provide proof of your:
You’ll also need to pay the required licensing fees, which can range from $100 to $700, depending on your state.
Many states require licensed auto dealers to undergo a criminal background check and fingerprinting. This ensures that applicants don’t have any criminal history that would affect their eligibility. Your state’s licensing authority will provide instructions on where and how to complete this process.
Finally, you’ll need to secure your dealer plates, which allow you to test-drive vehicles and demonstrate them to potential buyers. You’ll also need to obtain garage liability insurance, which protects your business from potential accidents or damages involving the vehicles in your care.
Once you’ve successfully obtained your auto dealer license, you’ll want to make sure you comply with all state regulations. You can maintain your compliance by following these steps:
Along with following these five compliance tips, you should avoid making these four common mistakes:
Getting the right auto dealer license can help you unlock the full potential of this profitable industry. By following the ten steps outlined above, you can launch your career as a licensed auto dealer with confidence.
Looking for fast, affordable auto dealer bonds? BOSS Bonds has you covered. Our hassle-free bonding process can help you select the right bond for your business needs. Request your free quote today!
Auto dealer bond costs vary by state, ranging from $100 to $700 annually, based on your state’s bond amount and your business’s financial standing.
A used car dealer license allows you to sell pre-owned vehicles, while a new car dealer license lets you sell brand-new vehicles from a manufacturer.
In most states, you must have a physical business location with a display lot in order to obtain an auto dealer license, though some states may have exceptions for smaller operations.
Sources:
NADA. Annual Financial Profile of America’s Franchised New-Car Dealerships.
https://www.nada.org/media/4695/download?inline
FTC. Dealer's Guide to the Used Car Rule.
https://www.ftc.gov/business-guidance/resources/dealers-guide-used-car-rule