Starting an auto brokerage can be a great business opportunity. There are two general types of auto broker: independent auto brokers and car dealers. In order to work in either capacity, you will need a license. This is because most states require you to have a license if you plan to sell more than two or three vehicles not originally purchased for personal use each year. Fortunately, the process to obtain an auto broker license is reasonably straightforward.
Auto Brokerage Basics
Independent auto brokers buy and sell cars and other vehicles for third parties for a profit, including both dealerships and individuals. Their job is often to work as intermediaries between dealerships and individuals, helping clients find a specific car that will meet their needs and preferences and then negotiating a low price for the car.
As such, auto brokers generally work in an inversion of the usual car-buying relationship: Instead of buying a car and advertising it to find a buyer, an auto broker is in contact with the buyer first and then locates the car the buyer wants. This business model guarantees a lot of independence, but as with any form of self-employment, it comes with certain risks. There is no guarantee that work will be available, and you'll need to put in effort to find clients and build relationships.
Car dealers are also auto brokers of the type that own and run car lots. Car dealers can be independent or part of a franchise associated with a brand name. It's also possible to work as a salesperson at a dealership using your sales skills and car knowledge to earn commissions.
Auto Broker License Requirements
In most states, you either can't sell any vehicles not originally obtained for personal use or can only sell up to two to three vehicles per year without a dealer's license. If you want to be involved with selling, buying or displaying motor vehicles for sale, you will need a license, and depending on the state in which you want to do business, this may be an auto broker's license or a car dealer license, also known as an auto dealer license or motor vehicle dealer license.
Some states even have different licenses for new vehicle dealers, used vehicle dealers and wholesale vehicle dealers. You will also need a license in order to access car auctions and auto shows, which is where you can find some of the best deals.
You should also be aware that some places will offer the chance to "rent" a dealer license by paying a membership fee to a local dealership or get licensed out of state so that you can access dealer auctions. While these may seem to be a tempting route into the auto broker business without all the commitment, they generally do not fulfill all the necessary requirements to do auto broker business legally and are best avoided.
Becoming an Auto Broker
The first step in becoming an auto broker is educating yourself about the automotive industry. There are no set experience or education requirements to become an auto broker, but in order to serve your clients, you will need to have a working knowledge of the auto industry. There are several ways to obtain this knowledge:
- A formal education at an automotive school. At an automotive school, you can learn about how to work auctions to get cars for resale, how to correctly price cars and about cars themselves and their features. A reputable program will include both classroom time and training at a dealership.
- Work under a car dealer as a salesperson. You can earn money from commissions as you learn instead of spending money to go to school, but you may miss out on some areas of knowledge.
- Working under another independent auto broker. If you can find another auto broker to work under, you can learn a lot about this specific line of work, including finding clients and building relationships with sellers.
Auto Broker License Cost
You will then need to get properly licensed. Different states have different licensing requirements, and there may be different requirements for new car dealers, used car dealers, dealers operating a physical location and dealers operating online. It's also important to note that you do not need a lot to operate as an auto broker, but having a lot may require additional licenses and fees.
Check with your state department of motor vehicles or department of licensing, which will be able to give you the guidelines for applying for an auto broker license in your state. There may be different fees for both the license itself and for ancillary matters.
For example, in California, in addition to the $175 initial application fee and any applicable county fees there is an auto broker fee, a fee for each location of the brokerage or dealership, a new motor vehicle board fee and a fee for every car dealer license plate. This makes the total auto dealer license cost several hundred dollars to several thousand dollars. There may also be special considerations for dealerships without lots, such as rules around displaying vehicles for sale at your home.
Auto Dealer License Application
Filling out your application for an auto broker license will typically include:
- A detailed business plan outlining how you plan to obtain funding, clients and cars as well as your proposed fee and business structure
- A background check and your financial history, which may also be required for getting your surety bond
- Paperwork for creating a "doing business as," or DBA — the name under which you will be doing business, also known as a trade name or business name
- A business license for your municipality
- Proof of surety bond
Surety Bond Requirements
As part of getting licensed, every state requires new auto dealers to obtain a surety bond. A surety bond is a guarantee that protects your customers from unlawful, fraudulent or unethical acts. That means that you'll be doing everything by the book, including paying all appropriate sales taxes and not misrepresenting a vehicle's condition.
Getting a surety bond typically requires a credit check, and while it's possible to get a surety bond with poor or no credit, the cost will generally be higher. State laws vary on how much your bond needs to cover, with amounts ranging from $10,000 to $100,000. Depending on who handles your surety and how your credit is, you'll pay a percentage of this up front and then file your certification as part of your auto broker application.
Additional Requirements for Auto Lots
If you're operating with a lot, check with the DMV or DOL for what standards your premises will need to meet. You may need a permanent sign with your business name and a landline telephone. You will also need to measure the square footage of your office and display area, and you may be required to take photos of the premises (per provided guidelines) to include with your application. Your premises will then need to be inspected.
An onsite inspection of your dealership will typically include:
- Inspecting all books and records pertinent to the business. This may include a book of registry, bills of sale, odometer statements, warranty forms and other documents.
- Inspection of signage. Different jurisdictions will have different rules about how your signs must look and their visibility from the street. Some jurisdictions will accept temporary signage as long as you can prove that signs of the correct type are on order.
- Inspection of your display area. Again, different jurisdictions will have different requirements, and a display area may not be necessary for certain types of dealerships.
- Inspection of premises. This typically involves making sure the place of business is a permanent structure and that your office meets certain requirements for a working space.
Once you're educated in your trade, have obtained the proper licenses, have your surety bond and have your premises inspected, you're all set to start buying cars for your clients. Your license will let you buy cars at auctions and attend auto shows, where with your skills and knowledge you'll be able to find great deals to pass on to your customers.
- JW Surety Bonds: How to Become an Auto Dealer: A Complete Guide
- Surety Solutions: Motor Vehicle Dealer License Frequently Asked Questions
- New York State Department of Motor Vehicles: Information for Automobile Broker Businesses
- Surety Bonds Direct: How to Get a Car Dealer's License Without a Lot
- State of California Department of Motor Vehicles: Vehicle Dealers License Forms including Autobroker
Danielle Smyth is a writer and content marketer from upstate New York. She has been writing on business-related topics for nearly 10 years. She owns her own content marketing agency, Wordsmyth Creative Content Marketing (www.wordsmythcontent.com) and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. In addition to this content, she has written business-related articles for sites like Sweet Frivolity, Alliance Worldwide Investigative Group, Bloom Co and Spent.