There are many benefits to becoming an auto dealer in California. For example, dealership compensation is among the highest compared to other industries and the highest of all retail sectors. Employee earnings within the auto dealership industry have also been increasing steadily on a yearly basis for the last several years.
Becoming a car dealer can also come with a flexible work schedule and the ability to scale one’s income as you have the time to put into it. For those with an entrepreneurial spirit, it is a great way to put their business sense to use without any startup expenses. It’s also a great job for people who enjoy communication and meeting new people.
How to Become an Auto Dealer
The process of becoming an auto dealer has many different steps and requires careful planning. Our Coffer Insurance team can guide you through all these steps. Please call if you have any questions. The following is an outline of the main steps you need to take in becoming a California auto dealer.
Required Dealer Pre-License Training Class (DMV Approved)
California requires anyone wanting a Wholesale or Retail Dealer License to take a “Pre-Licensing Class”. Industry experience or additional preparation is not required to take the course. By completing the one-day (6 hours) training first, you can save a lot of time and expense.
What to Expect
Our DMV Approved class is led by an experienced instructor. The cost is $150 per person. It is a 6-hour class. Everything is provided for you and you keep the Approved Dealer Training Book and receive a certification of completion.
Take the Auto Dealer Licensing Test at The DMV
Make an appointment at your nearest California DMV Occupational Licensing Office. To pass, you will need a score of 70% or higher (28 correct answers from 40 multiple-choice questions). You are allowed 3 attempts to pass.
Dealer License Types
The exact ways that dealer licenses are called and defined differs from state to state. For example, new car dealers in one state may also be authorized to sell used vehicles, whereas they may not be allowed the same in another. Yet, regardless of these minor differences, there are several major dealer license types that are found in all states:
- New Vehicle Dealer – also known as franchise dealers in some states, these dealers sell new vehicles retail. They typically have an agreement with manufacturers who provide them with the vehicles.
- Used Vehicle Dealer – also known as independent dealers in some states, these dealers typically only sell used vehicles retail or wholesale.
- Wholesale Dealer – wholesale dealers only trade with other licensed dealers. They do not sell vehicles retail.
- Broker – brokers do not sell vehicles themselves but assist people to find a particular vehicle and/or arrange the purchase of the vehicle.
- Distributor – like vehicle manufacturers and wholesale dealers, distributors do not sell vehicles to the public. Such dealers usually franchise licensed dealers who then sell the vehicles retail.
- Auto Recycler – while recyclers are not vehicle dealers, they are in the business of buying vehicles which they then dismantle, and sell off their parts and accessories.
Cost of Opening an Auto Dealership
The approximate cost of opening your dealership will vary widely depending on a number of factors. Your registration and licensing costs are determined on a state level and may differ significantly, though they are not the factors that will influence your cost the most.
The type of dealership you wish to open is by far the most influential factor. Dealing with new cars, for example, has drastically higher upfront costs. Similarly, whether you decide to open a service department will also influence your starting costs. On the other hand, industry trends show that increasingly more dealerships make significant profits through their service departments.
Other important costs that will be part of your initial budget include:
- Paying a lease or buying a location
- Obtaining office equipment
- Payroll expenses for the first few months
- Marketing and advertising costs
With all of the above in mind, estimates provided by industry experts about opening a dealership range between as little as $10,000 and as much as $100,000 or more.
All states require applicants for a dealer license to post a surety bond, though some states require bonds only for particular license types. Surety bonds serve as a guarantee that the bonded dealer will comply with state laws.
They also serve as a form of protection to the state and consumers. If a dealer violates the conditions of the bond agreement and causes harms and losses to a consumer, a claim may be filed against their bond. When a claim is filed by the state or a consumer, the surety that backs the bond will investigate the issue.
Surety Bond Cost
The cost of your surety bond is equal to a fraction of the full bond amount. The bond amount, or penal sum, is the maximum amount of compensation covered by the bond in the case of a claim. Bond amounts for dealers are determined by each state separately.
The surety that issues your bond determines the cost or rate, you need to pay by examining your personal credit score. Applicants with great credit scores are usually offered the lowest rates on their bond.
If you have questions about how to become an auto dealer in California, please do not hesitate to call or send an email. We are happy to help!