Texas Wholesale License vs Retail License

Texas Dealer Wholesale Dealer License vs Retail Dealer License GDN.

I want to give a quick explanation of the differences between a retail dealer license a wholesale dealer 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.

So first let’s start with a wholesale dealer license. A wholesale license allows you to get into dealer auctions but you cannot sell to the general public. Many of you want to get a dealer license for the sole intent of getting into dealer auctions so you can buy vehicles wholesale and this license allows you to get into dealer auctions but can only sell to other licensed dealers. Now I see adds all the time for companies that will help you get a wholesale dealer license in there state that allows you one or two dealer plates and does get you into dealer auctions. No I am not slamming this process at all, but I have received calls from all over the country from law enforcement officers that want to know why someone in Texas has an Idaho dealer license plates. When you have a vehicle with a dealer license plate that comes from a state that does not border your state, you bring the attention of you local law enforcement officials. I am not saying it is illegal by any means, but many states allow law enforcement to pull you over when you are driving a vehicle with a dealer plate, even if it is a dealer plate from the state of the law enforcement official. So if they can pull you over in Texas with a Texas dealer license plate, they will certainly you over when you are operating with a dealer license plate from another part of the country. I also know the State Highway Patrol’s routinely pull over vehicles with out of state dealer plates that are traveling through their state on major interstates. So for example, if you are driving through Texas on I-35 with a California dealer plate or a Massachusetts dealer plate, you are going to get pulled over. Now as I stated it is not illegal, but if they pull you over, hopefully you bought that vehicle at an out of state dealer auction and are delivering it to your dealership.

I have actually seen several states change their laws so a company cannot come into that state, rent a building with several offices and rent wholesale dealer licenses to out of state residents. Illinois, Missouri, Washington, Texas, Ohio, Oregon, and many other states changed their laws to specifically prevent companies from obtaining wholesale dealer licenses for out of state residences. If you are currently holding a wholesale license from another state that you do not live in, be sure to follow that states bills that are being introduced in that state’s legislature because it is a nationwide trend to ensure if you hold a dealer license in specific state, you must be a resident of that state. For awhile the state of Washington actually outlawed all wholesale licenses which put all the legitimate wholesale licensees out of business. They did revise that law later and allowed someone with a Washington dealer license to hold licenses but it no longer allows license holders to live in other states. In Ohio a company was renting 50 dealer licenses to out of state residents when the state law only allows 2 licenses in one building. The out of state dealer license company was required to shut down. There was once a company from Indiana that was renting a huge location in Missouri with about 250 licenses and was shut down by the state of Missouri.

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.

Texas Wholesale Dealer License

Now if you do obtain a wholesale license you can gain access to dealer auctions, but as I stated earlier you may only sell vehicles to other licensed dealers. If you hold a wholesale license and sell a vehicle to a person that does not have a dealer license you will probably get your dealer license suspended or possibly revoked by the DMV. At minimum you will receive a substantial fine. The State of Texas is very stringent about this, wholesale dealers may never sell vehicles to someone without a dealers license including family members. I have gotten calls from persons that say they want to get a dealer license just to sell vehicles to there immediate family members, which is not allowed with a wholesale license. I have also talked to several persons that want to get a wholesale license to get into dealer auctions to buy vehicles at wholesale and sell them to a business that they own. For example I talked to a person that owned a large landscaping company in Houston and wanted to buy trucks at dealer auctions so he could sell them to his own business. Many states have laws that specifically prohibit selling yourself a vehicle with a wholesale dealer license, so you should definitely check your state laws on this.

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.

Texas Retail Dealer License

The greatest thing about obtaining a Texas retail dealer license , or what is referred to as a GDN, is that you can sell vehicles to absolutely anyone. You can sell vehicles to other dealers, you can sell vehicles to the general public, you can sell vehicles to family members, and most states will allow you to buy a vehicle at a dealer auction and keep it as your personal vehicle. You will need to pay your sales tax if you want to keep the vehicle.No matter what, you will need to have a display area or lot. The State of Texas requires retail dealers to have at least 5 spaces on the display lot. Texas law requires that you have room for the type of vehicle you are licensed to sell. For example, is you are only selling motorcycles, you spaces must be large enough to sell motorcycles. If you are selling motor vehicles the spaces in you lot must be large enough to sell motor vehicles. I you are selling rv’s or semi-trucks, your spaces must be able to hold rvs or semi-trucks.

I am a big believer that a retail license is the way to go, I will always recommend obtaining a retail license over a wholesale license. With a wholesale license you can only sell vehicles to other dealers, which really limits your market. And as I stated later, if you think you are going to buy vehicles at dealer auctions, mark them up then sell them to other dealers, you may need to think again because dealers are smart, and they know wholesale prices and you will have to somehow convince them to buy from you at a markup instead of buying the vehicle for the same price you paid directly from the dealer auction. Now as I stated there are wholesale dealers that make a lot of money, but most of them have long term relationships to franchised dealers, and many franchise dealers are not longer selling there trade ins to wholesalers, they are selling there trade-ins on there lot.

With a retail license, the world is literally your market. Anyone that can drive a vehicle is a potential customer, whether the customer is driving by your lot, stops in an purchases a vehicle, or maybe you have someone that lives several miles or even hundreds of miles away that found your vehicle on the internet and it is exactly the vehicle they want. Or maybe you will explore the lucrative world of vehicle exports where you sell vehicles to persons in other countries.

No I speak to potential entrepreneurs all the time that state they do not want to go to the expense of finding a lot in order to obtain a retail dealer license. Having a dealer license is the world’s greatest business, when you see what vehicles are selling for at a dealer auction and what you can sell them for on the lot, I think you will wish you obtained your dealer license many years ago. My philosophy has been to buy a vehicle at a dealer auction and normally mark it up about $3500 to $4000 over wholesale then be ready to negotiate aggressively. However, you will be amazed at the number of people that will actually write you a check for your full asking price without negotiating. This is not the norm, but those customers are out there. I have also found a major negotiation starting point for many customers is to offer you $500 under your asking price and expect you to come back at $250.

Even in this scenario, if you marked the vehicle up only $3500 and dropped $250 off the price, you still made $3250 on the vehicle. Now you may not make this much on all your sales, on some sales you may only profit $1000 or less in some cases. But you should be able to rent a location in a high traffic location for 8 to 9 hundred dollars a month. And you should be able to pay rent on most locations with one low markup sale a month. So lets say you only sell 10 vehicles a month, then in this scenario, 9 of the vehicles you sold will be pure profit. If you did not have a lot, then the profit on those 9 vehicles would not have happened. As will any business you have to invest in yourself to make money. No one achieves the American dream without hard work and taking a risk that will reward.

This is the world’s greatest business.
In order to have a “retail” motor vehicle dealer license in Texas you must have a building and a display lot. If you do not have a building and display lot you will not be able to obtain a retail dealer’s license in Texas. This is the law.

We are approved by the Texas Department of Motor vehicles to provide you mandatory 6 hour dealer pre-license course, so when you are ready to make the move, click on blue Enroll Now button.

We are here to help you start your Texas motor vehicle dealership!

Texas Dealer License

Delus Johnson-Lead Instructor
Automobile Dealer Training Association