How Do I Get a License to Buy Cars at Auctions?

In addition to traditional dealerships and the private used market, cars of all makes and models are frequently sold in auctions. The car auction market was valued at around $3.32 billion in 2023, representing a growing avenue for buying and selling vehicles. 

There are two types of car auctions: public ones, which anyone can attend, and private ones, which require a license. Discover the differences between these auctions, what types of cars each sells, and the licensing requirements for participating in private events.

Public Auctions vs. License-Only Auctions

Car auctions fall into two broad categories: public and license-only. Each type determines who can attend and focuses on different categories of vehicles. 

Public Auctions

Public auctions are accessible to anyone; as long as attendees have enough money, they can bid on and purchase as many vehicles as they need. A public auction offers a wide range of older, high-mileage vehicles of similar quality to the average used car.

Some public auctions are managed by government entities and police departments selling retired fleet vehicles or seized property. Others specialize in salvage titles, allowing experienced car buyers to find low-cost project vehicles, provided they are ready to repair or restore the cars themselves. 

Many public car auctions also offer online bidding, allowing individuals to purchase vehicles without being physically present on the lot or the auction site.

License-Only Auctions

Some car auctions are accessible only to individuals with a specific license. They generally sell newer, lower-mileage vehicles from select sources. Depending on the entity holding a license-only auction, the vehicles on auction may come from:

• Dealership trade-ins
• Repossessed vehicles handled by banks, financing companies, or repo groups
• Insurance companies auctioning off totaled vehicles
• Rental companies selling fleet vehicles
• Former company cars, off-lease vehicles
• Manufacturer auctions selling off excess inventory

What Is a Car Auction License?

Although commonly referred to as an auction license, the permit needed to attend a license-only auction is a vehicle dealer’s license. It is not specific to car auctions; it allows individuals to buy and sell new and used vehicles as a profession.

Federal law considers anyone who is “engaged in the business” of buying and selling cars if it is their primary source of income. Most people do not need this license to buy and sell vehicles for their collections as long as it isn’t their main occupation or source of income.

However, those who make a living off trading vehicles or wish to attend a license-only auction (also referred to as a dealer or dealer-only auction) must obtain a dealer’s license.

How to Get a Dealer’s License

Each state’s DMV or equivalent agency handles vehicle dealer licenses. Some states may have multiple licenses, such as those specific to motorcycles, used vehicles, or wholesaling.

While the exact requirements and procedures to follow vary by state, most have similar basic requirements:

• A business structure and location. Becoming a licensed vehicle dealer typically requires a business entity and a dedicated location. The application process may require proving that the business exists with relevant documentation.
  
  Examples include registering it with a local government entity, submitting photos of the physical location to the DMV, or passing a state inspection. 

• Surety bonds. Virtually every state requires applicants to post a surety bond to the state or a state-approved bonding agency. The required amount varies depending on the state and license type.
  
  For example, most vehicle dealers in Texas must obtain a $50,000 bond, regardless of the types of vehicles they intend to buy and sell. In South Dakota, the bond amount varies from $5,000 for motorcycle and snowmobile dealers to $25,000 for new and used car dealers.

• Commercial insurance. Every state requires dealerships and vehicle dealers to get a liability insurance policy in addition to surety bonds. Typical examples include general commercial auto insurance and garage liability insurance. Some states, such as New York, may also require workers’ compensation insurance.

• Licensing and plating fees. Applying for a car dealer’s license requires processing fees, which vary from state to state. Auto dealers must pay fees to obtain dealer’s plates, which allow a license holder or a staff member to drive vehicles in their inventory on public roads without registering each one.
  
  Application and filing fees depend on the type and number of forms to be filed. For instance, a typical auto dealer’s license fee in Indiana costs $30, whereas driver’s plates cost $45 for the initial set plus $20 for each additional plate.

• Additional requirements. Many states require dealer’s license applicants to complete a background check, pass a dealer course, or follow other specific requirements.
  
  For example, motor vehicle dealers in Missouri must prove they are “engaged in the business” according to the state’s definition, which imposes a minimum of eight sales a year.

Applicants should visit their DMV’s website for the most up-to-date information on all licensing requirements.

Potential Challenges in Getting a Dealer’s License

A vehicle dealer’s license can grant access to more auctions and allow buyers to find a wider variety of vehicles. However, used car buyers should know the potential challenges in obtaining and maintaining this license.

• High costs. A car dealer’s license means the holder is considered to be in the business of buying, selling, and trading vehicles. In addition to the typical business operating requirements, obtaining a license requires posting surety bond premiums, which can be expensive for some applicants. These bonds require a credit check and proof of business history, making them inaccessible to individuals with limited credit or business experience.

• Insurance mandates. Some states require applicants to hold a commercial insurance policy, including liability, garage keepers’, and inventory coverage. For example, in South Carolina, applicants must submit a copy of their dealer’s garage liability insurance policy as part of the application process. Depending on the buyer’s operation scale, it can be difficult for them to maintain compliance. 

• Ongoing recordkeeping and compliance. License holders are expected to operate as businesses. This means they must keep thorough records, stay up-to-date on state laws, and maintain compliance year after year.

Decide Whether Dealer-Only Auctions Are for You

While a dealer’s license provides buyers access to auctions and unique used vehicles that are unavailable to the public, its primary purpose is a business license. Individuals interested in attending dealer-only auctions shouldn’t apply for a dealer’s license unless they plan to start an auto buying and selling business. 

Author: Corentin Bernard

Corentin’s passion for the automotive world started when he was just seven years old, during a life-changing visit to an auto museum. Now a seasoned writer, Corentin channels that early fascination into every piece he writes, whether he’s exploring the latest car trends or automotive history. But his expertise doesn't end there—he also brings his insights to topics like home improvement, the boating and yachting industry, personal finance tips, and cutting-edge tech.

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