Texas Wholesale License vs Retail License
Before obtaining any of these Texas licenses you will
need to know the differences because if you are doing
things with a license that are not allowed the State of
Texas will either fine you, suspend your license
temporarily, or possibly even revoke your dealer
license. The Texas Department of Motor Vehicles in
Austin has complete oversight and regulates dealer
licenses in Texas. The DMV has seen a lot of fraud
conducted with dealer licenses, especially in the last
few years. If you get a fine or a license suspension,
you have become a blip on the radar for TxDMV in Austin,
in other words they are now going to be keeping an eye
on you, so you are much more likely to be spotted for
any type of violations of state law after you have
become a blip on the radar. One of the best pieces of
advice I can give you is to fly under the radar, you do
not want to become a blip on the radar for the DMV in
Austin, in fact it would be best if the DMV does not
know you exist. You do not want customers complaining to
the DMV and you do not want to bring attention to your
dealership by breaking state laws. Do your best to
maintain compliance, and obviously compliance is to
follow every state law, rule, and guideline. We are a
tightly regulated industry because we are a high profit
industry that has seen a lot of fraud. A few folks have
gotten a dealer license in Texas to run criminal
enterprises, so now the laws have been tightened for us,
the ethical dealers that are running a legitimate
business.
Now, if you want to use one of these companies to obtain an out of state dealer license, in fact I think that Idaho and Wisconsin are one of the handful of states that allow out of state residents to hold a wholesale license. If you know what other states currently allow an out of state resident to hold a wholesale license, I would like to ask you to please leave them in the comments below. So you can obtain an out of state wholesale license but you are certainly going to be limited with what you can do with it.
Or, you can actually obtain your own wholesale dealer license in Texas. Texas, however, requires wholesale license holders to meeting local zoning laws. Many zoning laws do no allow you to hold a wholesale or retail license at a residential address. So you must ensure that you are meeting your local zoning laws. It is pretty easy to find out your local zoning laws, just call your city hall or county court house and ask for planning and zoning or ask for the office that handles zoning, you can give them the address of the location that you want to have your dealers license and they will say that you can have a license at that location, or you absolutely may not have a license at that location because it is not zoned correctly, so you must be zoned correctly regardless of which type of license you are obtaining. Many state laws strictly prohibit any type of dealer license to be held at a residence. Texas does allow a dealer license to be held at a residence require the license be held in a building that is separate from the actual residence itself.
I am not knocking wholesale licenses at all, but they do
have limitations. There are dealers that make a great living
with wholesale licenses but are not nearly as many wholesale
dealers that are making a great living the multitude of
retail dealers that are making money.
I the wholesale side of the business,
you have to develop long term relationships with other
dealers, including franchise dealers that are selling brand
new vehicles. In the past when a franchise dealer took a
trade, they would sell the trades to wholesalers. This is
not nearly as common as it once was, because franchisers are
aggressively selling trade ins now instead of selling them
to wholesalers. And the franchisers are advertising to buy
vehicles directly from individuals, how many times have you
heard there adds, We will buy from you even if you do not
buy from us. Franchisers are not selling there vehicles to
wholesalers like they used to, in fact the vehicles they are
selling to wholesalers are trade ins that can sometimes be
in horrendous condition, which would be why they do not want
that vehicle on the lot.
I also know and incentive to get a wholesale license is to buy vehicles at dealer auctions and sell them to other dealers. I want you to think about this scenario for a moment. When you get into dealer auctions you will quickly learn that the wholesale dealers auctions accurately track their sales data and give that sales data to all licensed motor vehicle dealers. For example, Manheim, the largest dealer auction company in the world uses a program call Manheim Market Report, or MMR. This is a free program available to all license dealers to show the exact wholesale selling prices of vehicles after every auction. What I am getting at, if you think that you are going to buy vehicles at dealer auctions, mark up the prices, then sell those vehicles to other licensed dealer, you might think again. Think about this for a moment, lets say you by a 2010 Chevy Cavalier for $4000 and mark it up to $4500, by the way the mark up on wholesale is much, much lower than retail, for example if I buy a vehicle at the dealer auction for $4000, I guarantee you I will be marking it up 3 to 4 thousand on the retail lot, but we will talk about retail markups in a moment. So, lets say you buy that vehicle at the dealer auction for $4000 and mark it up to $4500, the first thing you will have to do is market it to other wholesale dealers, how are you going to do that? That is something to think about. But more importantly, why is that other dealer going to pay you more for a vehicle that they can buy at the same wholesale price next week at the dealer auction.
Think about his, a licensed motor
vehicle dealer is going to have MMR, they know what you paid
for that vehicle at last week’s dealer auction. Why would
they pay you a marked-up price, when they can just buy the
same vehicle for the price you paid at next week’s dealer
auctions. This process is not a blueprint for success.
Although obtaining a wholesale dealer license may sound
attractive and you think that you are going to buy vehicles
at wholesale and sell them above wholesale to other dealers,
you might think again. Now if you say for example have
access to an unlimited supply of vehicles that no one else
has access to you want to sell all these acquired vehicles
through dealer auctions, that could be quite profitable, but
I do no see that being the norm.
The biggest advantage to a wholesale
license is that you are not required to have a lot. I want
you to be aware, however, there are a couple of states that
require a wholesale dealer to have a lot, I am only aware of
2 states that require a wholesale dealer to have a lot but
they are not
the
norm. Almost every states allows you to have wholesale
dealer license without a lot.
So maybe a wholesale license is for
you, or maybe it is not, now lets talk about a retail dealer
license.