Auto dealerships come in all shapes and sizes. Some are sprawling businesses with hundreds of vehicles on-site while others are tiny car lots with a few vehicles for sale. There are also auto dealers that sell vehicles independently without a permanent location. There are many options for how to become an auto dealer as well as compelling reasons to enter a market for auto sales and parts valued at over $343 billion.
Before you can work as an auto dealer, however, you will need to meet certain requirements and prepare for a few costs. In particular, you will need to obtain an auto dealer license for the state where you plan to operate. Every state requires auto dealers to have a license, and there can be strict penalties for selling vehicles without one, including being banned from ever obtaining a license again. If you’re curious how to become a car dealer, begin by following the steps to obtain a license and meet the requirements and costs outlined below.
Step 1: Determine if You Need a License
You may not need a license if you only plan to sell a few vehicles. If you want to sell your own car, for instance, you don’t need a license to proceed with the sale. Every state sets its own requirements for who needs an auto dealer license and when. In some states, anyone who plans to sell more than 3 vehicles will need a license while in other states the threshold is a little higher. That being said, if you plan to make a full-time or part-time job of auto sales, expect to need a license.
Step 2: Work With Your State Agency
As we said before, every state regulates auto dealers independently and creates unique rules for that state. In addition to creating license requirements, there are also requirements about dealer conduct designed to ensure that auto sales run in a fair and transparent fashion. Before going any further in the process of how to become a car dealer, find out what agency regulates auto dealers in your state, then contact them to ask questions and get good information.
License requirements and dealer rules can change, and the agency that writes those rules will be the best source for accurate, up-to-date information. That agency will also be the one to process your license application, so they may offer resources to help that process run smoothly.
Step 3: Make a Business Plan
You will need to have certain aspects of your business either established or decided upon before being granted an auto dealer license. It’s also a smart move to have your business ready to hit the ground running as soon as the state grants a license. For those reasons, figure out what kind of auto dealer you intend to be first.
Where will you operate? What kind of auto lot will you utilize? What technology and processes do you need to run your business effectively? Will you need to hire staff? These are all important questions that impact not just your ability to get a license but also your ability to be successful and sustainable. The more you figure out early, the better.
Step 4: Request an Application Packet
Once you’re ready to get a license, request the necessary forms and documents from the agency you connected with during Step 2. They will send you a packet of information and forms, or you may be able to access some or all this information online. This packet will make it clear what requirements you need to meet and what costs you need to pay to become a licensed auto dealer.
Step 5: Complete the Application Packet
Even though every state has different license requirements, there are some common requirements you will probably have to comply with. Those include:
- Proof you have a business license
- Proof you have insurance
- Permission to run a background and credit check
- A detailed business plan, including information about the car lot where you intend to operate your business.
Step 6: Obtain an Auto Dealer Surety Bond
Among the most important steps for how to become an auto dealer is the mandate to obtain an auto vehicle dealer surety bond. This type of surety bond, like all other types, makes the bondholder (in this case the auto dealer) financially liable for illegal or unethical behavior that results in damages to individual car buyers or the public at large.
For example, if a dealer sells a vehicle with the odometer rolled back to make it look like it has fewer miles than it actually does, the person who buys that vehicle may file a claim against the surety bond seeking compensation equal to the vehicle cost. Provided that the claim holds up under investigation, the surety that backs the bond will offer an immediate settlement, then work to collect that same amount (plus interest and fees) from the dealer who sold the car. By holding dealers accountable, surety bonds create an incentive to follow the rules, which is why all states have bond requirements.
You can obtain a bond by finding a surety agency that issues the required bond in your state. Prepare to complete an application with info about your background, finances, and business interests. You will also need to submit to a credit check and turn over any additional documents the surety requests. The surety will quote a bond price based on the application materials. It will be a small percentage of the bond’s total size, with higher costs for bond seekers with poor credit.
Following this, you will pay the quoted price to activate the bond, at which time the surety will provide a document proving you have met the motor vehicle dealer surety bond requirements. You will also need to keep that bond active and in good standing, which means avoiding claims at all costs and paying to renew the bond on an annual basis.
Step 7: Pay the Required Fees
After completing everything in the license packet, you will need to submit everything back to the state licensing agency along with applicable fees. Those fees vary by state, from less than $100 in some places to multiples more in other places. There might also be additional costs associated with the application, like paying for the surety bond or enrolling in training courses if necessary. If you are investigating how to become a car dealer and getting serious about following all the steps outlined above, make sure you are also budgeting and saving for all the upfront costs.
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