Below are some of the issues to consider in getting an out-of-state (Indiana) dealer license vs. a California dealer license.
Wholesale Dealers Cannot Sell to the Public
The Indiana dealer websites offer an Indiana wholesale dealer license. A wholesale license does not allow sales to the public. You will not be able to sell to the
public through Craigslist, E-Bay, AutoTrader.com, etc., or even your own website. You cannot sell to friends, or relatives, either with the Indiana wholesale dealer
license. You can only sell to other licensed dealers, or possibly export. To sell to the public, you need the California retail dealer license, available only
through the California DMV.
Wholesale Dealer “Partnering” with a Retail Dealer
Some Indiana sites also offer to introduce you to a retail dealer that you can sell your cars to.
This raises several other issues.
First, most retail dealers will have little or no interest in purchasing vehicles from you. They could have purchased the vehicle directly from
the same dealer auction as you - without your commission.
Second, the sites promote that you can sell your vehicles to their retail dealers, and that these dealers will then sell to your buyers. What is not addressed
is the practical issue of how you will obtain those buyers. As a wholesale dealer you cannot sell to the public, so therefore you are not permitted to advertise
your vehicles to the public. To do so would be fraud, advertising vehicles to people you cannot sell to. You also cannot consign your cars to another dealer to
have them sell your vehicles for you. That violates DMV regulations. So selling to another dealer to try and make retail profits with a wholesale license is
not a viable business model.
Third, the retail dealers will not help you for free. You will need to pay them. This could be part of an ongoing “service fee” you will be required to pay
to the Indiana business, or a commission for each vehicle, if any, the retail dealer might sell.
The Indiana dealer operations generally charge several hundred dollars per month to use their service. A California dealer license, on the other hand, requires
no ongoing monthly fees. However, California dealers must have at least an office location, which is an ongoing expense. Then again,
Indiana requires an office location too. The difference is that you pay the Indiana dealer business for the privilege of using their business location to get their
license instead of rent for your own California office and dealer license. The savings, if any, would be the difference between the rent paid
in California vs. the fees charged by the Indiana dealer business. Any savings, however, must still balanced with the other issues with having an out-of-state
license vs. a California dealer license.
To get a California wholesale dealer license, DMV requires only an office – no display area, nor any sign. Often times this means you can have a home
office without any additional rent. You also avoid all the monthly charges for any out-of-state dealership service. Even if you do get an office, it only needs
to be big enough for a desk or table, and a filing cabinet. You can even sublease space where other business are located to keep your office expenses very low.
Then you have your own business location and presence in California, the state where you live, and the state in which you do business.
Changing from Wholesale to Retail
If you get an Indiana wholesale dealer license, that’s all you can be, a wholesale dealer selling to other dealers, or possibly exporting. However, if you
get the California wholesale dealer license, you can always later covert to retail sales, or add a retail branch location to your wholesale license.
In other words, you can start with a wholesale license (with very low overhead, maybe even a home office), and later get a new location with an office,
display area big enough for 2 vehicles, and a two foot square sign, to get your retail license. Getting your California dealer license allows you to
change to retail, or wholesale, at any time, and have as many locations as you want in California. The Indiana license does not.
Travel to Indiana
To get the Indiana dealer license, you will have to travel to Indiana. You will have to meet with the Indiana Secretary of State Compliance Officer
to request approval for an Indiana dealer license. This is considerably more expensive, and time consuming, than attending any California dealer Pre-Licensing
class to get your California dealer license. In addition, when reviewing their dealer license contracts, look to see which state's laws apply to your dealership,
and where any court,arbitraion, or other legal proceedings will have to take place. Chances are excellent you will be bound by Indiana law, and required to appear
in Indiana to either collect money owed to you, or to defend yourself. No one wants problems, but if something does come up between you and another party, it is
considerably easier and substantially less expensive to collect and defend in your own backyard.
Dealer Bonds and Insurance
All dealers, Indiana or California, require a dealer bond and dealer insurance. The Indiana dealer businesses offer to sell you their bonds and their insurance,
which is a nice service. On the other hand, we provide you the names and contact information for the bond and insurance companies that have recently provided
California dealers the lowest rates. To make this list, these companies must be refered to us by dealers. We receive no kickback, or fee, from any company on this
list. These companies make the list by providing the best rates and services, period.
"Sharing" a California Dealer's License
Some sites are offering, for hundreds of dollars per month, to add you onto an existing dealer license in your state. This is not easy as few dealers will
take the risk to do this. There are considerable risks for you too. These situations can be like arranged marriages where the parties don't know each other
but are put together and their fortunes and losses depend on the actions of the other.
Potential issues include the following:
Cost. The money you pay every month to use the license is money you could have been investing in your own business and your own inventory, not
As a member of another business, you are subject to rights and obligations of all the others involved in that business, many, if not most of whom,
you may never know.
Their dealer business could fail, through no fault of your own. Then you have no dealer rights. You cannot buy more vehicles, nor sell the vehicles you
already own, potentially sticking you with inventory you cannot move.
Your business assets, including your inventory and money, are subject to being taken in a lawsuit because of actions by others using the same dealer license.
The bottom line is that you will be responsible for protecting your assets, including attorney's fees.
The more people that sign up for this arrangement, the more money the organizers make, and the less control you have. Your assets are also at greater risk with
each new member that joins.
If you feel sharing a dealer license is a good deal for you, be certain to take the time to read the fine print on any contracts you are required to sign,
or have an attorney review them. Also, ask all your questions, even if they seem silly. Make sure the answers provided match the
written contracts you are asked to sign The contract are binding. What you are told to encourage you to sign them is not.