Automobile Dealers - What is Needed to Get an Automobile Dealer’s License?

Licensing requirements are determined by each state. Specific requirements by state are available at the National Independent Automobile Dealers Association (NIADA) website, www.niada.com.

Application. Before going into the business of selling motor vehicles, a person must submit a completed application, with required documentation and fees. License applications may be obtained from any Division of Motor Vehicles (DMV) regional office. Be prepared with the following information for the application:

Name of the business. See “Registration of fictitious trade name” further along in this section.
Address of the business.
Is the business a sole proprietor, co-partnership, an association, limited liability company (LLC) or a corporation?
If other than an individual, give the names and residential address of co-partners and the officers in an association or corporation.
Will your business be primarily buying, selling or trading motor vehicles? And will it be mainly selling new vehicles or mainly buying and selling second-hand vehicles?
Be prepared to give a complete description of all the premises to be used for the car dealership. (In some states the business site will be inspected before license is granted.)
Are you a recognized agent of a motor vehicle manufacturer? If so state name of manufacturer. (New vehicle dealers will be required to submit a franchise agreement.)

Fees. Each state determines the cost to obtain a license. Information regarding fees by state is available at the National Independent Automobile Dealers Association (NIADA) website, www.niada.com.

Car Dealer’s License Bond. Requirements do vary slightly from state to state, but a majority of the states require some assurance of your financial stability before the license process is complete. Most states require a car dealer’s license (surety) bond, but vary in the amount of the bond.

A surety bond is required in order to discourage car dealers from unscrupulous practices and to give the public a sense of security when purchasing cars from a licensed dealer.

A car dealer’s license bond is also required for other situations you might not think about. For example, if you bid on a car at a car dealer auction and refuse to pay for the car, the car dealer auction can sue for your bond amount.

A surety bond involves three parties. The bonding company, or surety, is the carrier of the bond. The obligee (State) is the party requiring the bond of the principal (you). You (the principal) are the party obtaining the bond. This three party agreement is a guarantee of performance.

You may have a choice of providing a surety bond or an Irrevocable Letter of Credit (ILOC).

An Irrevocable Letter of Credit ensures that you are “good for” the amount this letter, addressed by the bank, and guarantees the holder for these certain funds. The bank normally freezes assets for the amount of the letter of credit as a guarantee that the account holder actually has the cash, in case the claim is called. In simple terms, on a $25,000 ILOC, you cannot touch $25,000 of funds in your account to fully cover for the amount until the letter of credit is released.

There are premiums and service charges associated with surety bonds and some would argue that these costs are more expensive than a Letter of Credit. However, study each option carefully before making a decision. Although surety bonds seem more expensive at first glance, they may actually be less expensive than an ILOC and allow you more liquidity to run your business with less worries.

Liability Insurance. Whether a dealership is large or small, coverage will be necessary to insure the cars and trucks on the lot and the garage associated with sales. Protecting a business is essential to operating effectively. Getting insurance for a car lot should be part of the planned monthly expenses in the budget. Finding inexpensive, yet ample coverage will help keep costs down, but bring security in knowing that investments are covered. There are companies that will write the specific insurance needed for your car dealership. Coverage might include:

Garage Liability—auto and premises
Garage Keepers—customer cars
Property Coverage—contents, tools, building
Business Auto Owned Vehicles
Dealers Blanket Vehicle Inventory
Workers Compensation—employee injuries

Business site. A copy of your lease or proof of ownership will be needed.

Photographs of the lot, sign and office at the business location may be required.

Inspection of Business Site. States that inspect the business site are usually checking the following:

The office of the principal place of business and each location of the dealership must be established to the extent that its construction is not temporary, transitory or mobile in nature, except that a trailer coach office is acceptable providing it is not part of the dealer's vehicle inventory being offered for or subject to sale while being used as an office of the dealership and otherwise meets the requirements of the Vehicle Code.
For new car dealers there must be space under roof for the display of at least one new motor vehicle.
For dealerships that have a service department there must be space under roof for servicing and repair of at least one automobile.
A sign showing the exact name of the business. Some states require that the hours the business is open be posted.
The dealership must be used exclusively for the purpose of offering for sale, displaying for sale or dealing in motor vehicles.

Dealer training seminar certificate. A pre-licensing class is often required by law for any person applying for a first time automobile dealer license. You can obtain a list of approved schools from the Division of Motor Vehicles' regional office. Some of the areas of training might include:

Civil Code, relating to motor vehicle sales finance.
Motor vehicle financing.
Truth in lending.
Sales and use taxes.
Relating to equipment of vehicles.
Advertising.
Odometers.
Vehicle licensing and registration.
Branch locations.
Offsite sales.
Air pollution control requirements.
Regulations of the Bureau of Automotive Repair.
Handling, completion and disposition of departmental forms.

Registration of fictitious trade name. A DBA (doing business as) filing is an official and public registration of a business name with either the state or local jurisdiction. A DBA name is also called an assumed name, trade name or fictitious business name. DBAs enable sole proprietors to conduct business under a name other than their own personal name and enable corporations or limited liability company (LLCs) to do business under a name other than that which is used on the company’s articles of formation.

Once the state and/or county has approved the DBA filing, the business can begin using this name as its official business name by publishing stationery and/or business cards, developing advertisements and/or directories, making transactions on behalf of the company, etc.

The typical completion time for the DBA Filing Service is four to six weeks.

Many business owners prefer to use a DBA rather than a personal name or company name for a variety of reasons:

To develop a business identity.
To create a marketing campaign.
Due to requirements imposed by banking organizations.
To notify other businesses that the name is in use as the DBA name becomes part of public record.

Copy of corporate papers. Documentation from the Secretary of State may be required to show how your business has been registered.

Sales tax number. You must apply for a State Sales Tax Number with the Revenue Department. Your sales tax number or a copy of your sales tax application will be required in order to receive your dealer license.

Federal employer identification number. An Employer Identification Number (EIN) is a nine-digit number (for example, 12-3456789) assigned to sole proprietors, corporations, limited liability company (LLC), partnerships, estates, trusts and other entities for tax filing and reporting purposes. You may immediately use the EIN for banking or business purposes.

Number of Dealer Plates Requested. Standard size (6-inch by 12-inch) license plates that can only be displayed on a motor vehicle held for resale by a motor vehicle dealer/manufacturer.

Public and wholesale auctions are not eligible for dealer plates because they do not own the vehicles being sold.

Fingerprints. A set of fingerprints will be required by some states.

A Background investigation is conducted on applicants by some states. Failure to disclose convictions or providing incorrect information on the application may result in the refusal or denial of your license.