A car dealer license (also known as an auto dealer or motor vehicle dealer license) is required to legally sell motor vehicles in the United States. Each state has different requirements you must meet before you can obtain your license.
In this guide, we’ll outline the steps you need to take to get your car dealer license.
Choose your car dealership type
The first step to obtaining your car dealer license is to determine what type of license you need. There are different types of licenses depending on the type of vehicles you seek to sell.
Here are the most common types of motor vehicle dealer licenses:
- Dealer wholesaler license: dealers selling vehicles to other dealers
- Auto broker licenses: dealers that help consumers find cars from other dealers
- New and used motor vehicle dealer licenses: dealers selling new and used cars to individuals
Depending on the state, car dealers may be required to obtain separate licenses to sell new and used vehicles.
The following states have different licensing requirements for used car dealers:
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
These states require a single license for new and used car dealers:
- New Hampshire
- New Jersey
- South Carolina
- South Dakota
- West Virginia
Research and satisfy all necessary requirements
Each state has different requirements you will need to satisfy in order to receive your car dealer license. While there are some commonalities between state requirements, there can be vast differences in the steps needed to complete the licensing process.
For example, in the State of Pennsylvania, you’ll need to submit five applications to receive your license while in many other states, you’ll only need to complete one application.
Below are some of the obligations you’ll likely need to fulfill:
Most states will require a background check as part of the application process. The local government entity responsible for dealer licensing, typically the Department of Motor Vehicles (DMV), will look to see if prospective applicants have a history of crime or other instances of immoral behavior.
Register your business
Before you can obtain a car dealer license, you’ll need to legally form your business and receive a business license. Here is a brief overview of the steps this will involve:
- Determine your business structure (sole proprietorship, LLC, corporation)
- Choose your business name
- Obtain federal and state tax ID numbers
- Register your business
- Open a business bank account
You can visit the U.S. Small Business Administration website to learn more about forming your auto dealer business.
Establish your business location
It is important to secure and set up the retail site where you plan to sell your vehicles before applying for your auto dealer license. Most states have precise requirements for car lots that will need to be satisfied for your application to be approved.
Here are some of the common requirements for a dealer’s established place of business:
- Have a fully signed copy of the lease or proof of ownership
- Ensure the location complies with all local building codes, zoning regulations, and land-use ordinances
- Have a listed phone number and functional telecommunications system
- Ensure the building has exterior signage that clearly identifies the nature of the business
- Have a space to perform administrative and financial work
During the application process, you’ll likely need to provide photos of the business location to prove that it meets all requirements. Some states also require applicants to have a DMV inspector come to view the place of business in person.
Other common requirements for getting your car dealer license include successful completion of dealership training and obtaining general liability insurance and workers’ compensation insurance.
Get a motor vehicle dealer bond
All 50 states and the District of Columbia require licensed dealers to post a motor vehicle dealer surety bond. The bonds provide financial protection for consumers, governments, and creditors with a guarantee that dealers comply with all the regulations set forth in their license.
Here are a few examples of how the bonds protect these parties:
- Consumers can trust that the vehicle they purchase is safe and that the dealer has been honest when providing information about the vehicle
- Creditors can trust that the dealer will reimburse them for financing
- Governments can trust that the dealer will abide by state laws and pay all income and sales tax
If the dealer violates any of the regulations set forth in their dealer license, damaged parties can file a claim against the dealer. The surety company that issued the bond will pay out the damaged party up to the penal sum (total amount) for the bond. The dealer is then responsible for reimbursing the surety company for any damages paid.
The required bond amount varies based on the state. It can range anywhere from $5,000 to upward of $100,000. Dealers do not need to post the entire value of the bond upfront. Instead, the surety company issuing the bond sets a premium (a percentage of the total bond amount) that the dealer must pay.
Premiums for auto dealer bonds typically range between 1% to 5% of the total bond amount. The surety company determines the premium rate on an individual basis by evaluating the dealer’s credit history, industry experience, and other factors.
Submit your car dealer license application
Once you’ve completed all the necessary requirements, you can submit your dealer license application. Go to the website for the licensing agency in your state (typically the DMV) or contact them via phone to access all the appropriate forms.
Fill out the forms and return them to the agency along with your surety bond and other requested documents.
After receiving your documents, the state will review your application. If approved, they will mail you your official car dealer license. This process can take up to a few weeks depending on your location.
Apply for an auto dealer bond online with EZ Surety
When you’re ready to start the dealership licensing process, EZ Surety can offer you a free online quote for your motor vehicle dealer surety bond. We provide competitive premiums and quick turnarounds for individuals of all financial standings. Get in touch today to learn more.