Wholesalers and how they work have always been a bit of a mystery, even for auto industry insiders. They are known to acquire the inventory that a dealership can’t sell and somehow get another dealership to buy it. Although all these processes can be quite confusing, but successful wholesalers can sell cars wholesale largely because of their knack for valuing used vehicles. They’ve also built up a network of dealers over the course of years.

When a wholesale vehicle comes along, they know what it’s worth in the right market on the lot of the right dealer. Low overhead is one crucial factor that has helped traditional wholesalers remain profitable. In some states, wholesalers don’t even require a physical storefront or insurance. They just need a wholesale license and adequate capital to buy their first vehicle.

Note that so many dealers don’t trust wholesalers after having less than positive experiences with them. Coupled with time-consuming negotiations, dealership owners can end up with checks that bounce when the wholesaler can’t honor the payment. However, the industry is now evolving, and it is evolving in a way that’s doesn’t support the traditional wholesaler in the way it used to.

Have it in mind that access to information has put a lot more power in the hands of dealers. In this technological age, there is now an abundance of pricing data online that’s up-to-date and being added to every day. More transparency has helped used car managers equal the pricing playing field with wholesalers.

Also note that the rise of online auctions has drastically changed wholesaling. Traditional wholesalers were once believed to be more cost effective than auctions. Wholesaling at a physical auction involved transporting the vehicle and going to the auction where dealers would compete with a number of similar bargain buyers to get the attention of a limited number of buyers.

However, online auctions have entirely reinvented the process, much to the benefit of dealerships. These days, cars don’t have to show up at an auction location and the pool of buyers is much, much larger online. This new wholesale option has diminished the advantage of selling aged inventory to a traditional wholesaler.

Indeed, selling cars wholesale used to be time-consuming, tedious, and riskier for dealers that hadn’t made strategic partnerships. Howbeit, some pros who have been in the business for years understand how to make money wholesaling cars the traditional way.

Understanding how to buy wholesale cars without having to wait for a local wholesaler to find what you need gives dealers more control over their used inventory. Note that it doesn’t necessarily replace traditional wholesalers who seem to always find a way to carve out a piece of the action.

4 Common Ways Wholesale Car Dealers Make Money

Indeed car dealerships can’t exist unless they are profitable. That is true for every business, from a neighborhood dry cleaner to a mega-retailer like Walmart. For wholesale car dealers, the rows of shiny new cars might prompt shoppers to believe that they’re where the business makes most of its money. Nonetheless, here are the basic revenue streams of wholesale car dealers;

  1. Car Sales

Yes, dealers make money on each car they sell. But often, that profit comes from the manufacturer, not the customer. “Dealer holdback” is money that is given to the dealership by the manufacturer when the car is sold. This is usually no more than three percent, but it puts money in the dealership’s pocket.

Also, there’s a thing called “dealer cash” that is used by the manufacturer to give the dealer a reason to make sure that each car rolls off the lot. Dealer cash incentives are often tied to particular models

In addition, there is the practice of “stair-step incentives” in which the manufacturer pays the dealership for the total number of cars sold in a given period and typically this builds throughout the year. Therefore, while the dealership may earn a single sum for the number of cars sold in a given month, that sum may jump up for a larger number sold that quarter and an even larger number sold for the year.

  1. Arranging Car Loans

Car loans make dealerships money and it is here they increase revenue through extended service plans and marked-up finance rates, which is a big area of profit for dealers. Dealerships ‘buy’ financing at one rate and ‘sell’ it to customers at another and keep the difference.

Have it in mind that this can add up to thousands of dollars over the life of a loan. However, this also means that loan rates are a negotiable item for dealerships, too: if they are feeling pressured to hit a sales goal, they may be able to lower a customer’s loan rate to meet or beat that of a bank.

Dealers also can profit from what is called “gap insurance”. For instance, if a car gets totaled, this insurance will pay off the difference between what the insurance company pays for the car and the amount borrowed to buy the car. Gap insurance is usually only recommended to buyers who make a very small down payment on a car and finance most of the purchase.

  1. Trade-Ins

Indeed, most people are aware the car salesperson is working for a commission and that means the salesperson wants to sell them a car for more than they want to pay. Normally, when a car buyer is in the market for a new car, there is also going to be a trade-in to use for negotiating purposes.

This is when a person brings their used car to the dealer and trades it in to get a newer model. The customer’s car was most likely purchased or leased new…and now they want a new model. The dealer will offer that person a dealer-trade in value (which is usually at or below the wholesale value).

Dealers get all types of trade-ins. Many dealers will wholesale their older vehicles or high-mile vehicles if they sit on their lot too long. Note that this is where car dealerships can make money, too, if the buyer does not know what the trade-in is worth.

  1. Add-ons

Wholesale car dealers also make more money by selling add-ons, such as an extended warranty, gap insurance, or other accessories to car buyers – adding another $750 to $2,000 to their bottom line. If you are going to be servicing your car at their dealership, they stand to make even more profit through parts and service – easily adding another $3,000 of profit over the life of the vehicle.

Conclusion

Most dealers don’t generate the bulk of their profits on the sale of a new car. The big profit usually comes through arranging car loans, selling add-ons, and making money on your trade-in. Wholesale Car Dealers can easily make a profit of $3,000 just through the financing alone.

If you have a trade-in, a dealer can make another $2,000 on that. They simply low-ball your trade-in, then turn around and sell it for a nice profit. Howbeit, if you only focus on the price of the car, you may not think the dealer is making much money, but when you factor in all these other things, a dealer can make $10,000 profit off of just one sale. However, that large a profit is not typical, but most dealers do make the bulk of their profit in areas other than the actual sale of the vehicle.

Frequently Asked Questions

  1. How Do You Make Money Selling Cars At A Dealership?

Generally, car dealerships are known to make money from selling cars, however, they make the majority of their money from other services. Aside from selling cars, here are other ways care dealerships make money;

  • Finance & Insurance
  • Extended Warranties
  • Protection Packages
  • Maintenance & Repairs
  1. How Do You Handle The Title When Flipping Cars?

Note that transferring a car title is made up of two steps, one for the seller and one for the buyer. Initially, the seller will have to release ownership of the car by signing the title. The buyer then takes the signed title to the DMV, and the state issues a new registration and title.

Have it in mind that some states might mandate extra paperwork to finish the process, such as a bill of sale or a transfer of ownership form. When it is a new car, the dealer handles the paperwork, and the new owner usually receives the vehicle title from the state’s DMV in the mail. But when private parties buy or sell cars, it is up to them to transfer the title.

  1. How Do You Start An Automobile Wholesale Business?
  • Conduct market research.
  • Look through classifieds to identify possible locations to set up your business.
  • Complete your wholesale dealer license application.
  • Submit your application and pay fees.
  • Purchase a surety bond for the amount stated on the license form.
  • Buy cars from dealership-only auctions.
  • Advertise your business
  1. How Do You Get A Car As Close To Its Wholesale Value?
  • Acquire Car Information
  • Use a Guide
  • Have a Budget
  • Attend a Wholesale Car Auction
  • Negotiate
  • Consider the Dealer Holdback
  • Assess Other Incentives and Discounts.
5. How Can You Sell Cars To The Public With A Car Wholesalers License?

A wholesaler license limits your sales to other dealers and you cannot sell to the public. Note that you can buy from private parties, at the dealer auctions, and from other dealers directly. However, you can only sell to other dealers, sell/export vehicles to foreign countries, but cannot sell directly to the public.

  1. How Much Should I Spend On A Car I Plan To Flip?

According to experts, you should set yourself a budget of $1,000 to $1,500. It is imperative you try to make a smaller profit of $500 to $1,000. Note that this will give you lots of experience and will not be a huge risk. If the deal starts looking not so good, maybe owing to a mechanical issue that your inspection didn’t notice, you should be able to at least get your money back, as long as you’ve bought the car cheaply enough.

  1. What Does It Mean When A Car Is Sold Wholesale?

It simply means that price paid for the car is the same as what the wholesale dealer paid to the car manufacturer. The retail dealer will then sell the car for more and pocket the profit

  1. How Can You Make Money From Your Ideal Car On Weekdays?
  • Deliver Food
  • Drive for Ridesharing Apps
  • Advertise On Your Car
  • Haul Stuff
  • Deliver Groceries
  • Deliver Alcohol
  • Deliver Amazon Packages
  1. How Many Cars Can A Wholesaler Buy And Sell In A Year?

In the United States, there is no limit to how many cars a wholesaler can buy and sell in a year, as long as they are dealer-to-dealer transactions. Wholesale dealers are not permitted to sell even a half engine to a private party.

  1. Does A Wholesale Auto Dealer Need A Business Account, Or Is A Normal Bank Account Sufficient?

Ideally, a wholesale auto dealer will need a business account, a normal bank account is not sufficient in any way.

  1. When A California Wholesale Dealer Buys A Car For Inventory, What Forms Are Needed At The Dmv?

In the State of California, Sales of wholesale vehicles are expected to be reported on a Wholesale Report of Sale (REG 396) with the California DMV. Wholesale vehicles sold at auction will have to be reported on an Auction Wholesale Report of Sale (REG 398). Have it in mind that these forms can be picked up from the DMV’s Occupational Licensing Section.

  1. How Do You Start The Business Of Selling A Car When You Have Nothing To Start With?

Just like a consignment business, you can start this business when you have nothing and still make profits. You only have to convince people who are eager to sell their used cars to leave them with you while you seek buyers and reach a favourable agreement to keep a certain percentage from the deal once you are able to sell off the car. Once the deal pulls out, it is a win-win for both parties. You will make your profits and the owner of the car makes money off his or her used car.

  1. Once You Have A Dealer’s License, Do You Pay Sales Tax On A Car Purchased From A Private Seller?

This will depend on your state and business location, therefore it is imperative to contact your state to find out which tax exemption forms you must submit to avoid paying taxes on items purchased for resale.

  1. Do You Title A Purchased Car In Your Name First?

In the United States, to buy or sell a car, the name on the title must be changed or transferred from the previous owner to the new owner.

  1. How Can You Become A Wholesaler And Make a Good Amount Of Money?
  • Acquire state business registration.
  • Get a suitable location for your dealership and have it approved (if applicable)
  • Complete your wholesale dealer license application.
  • Submit your application and pay fees.
  1. How Much Money Can You Make As A Car Wholesaler Without A Retail License?

This will depend on the number of sales and other factors such as the brands sold and whether they sell new or used cars. However, the average salary of a car wholesaler in the United States is around $73,000 per year.

  1. What Sort Of Liability Vehicle Insurance Do You Need To Cover The Vehicles While In Your Possession?

Garage keepers’ liability insurance/surety bond.

  1. How To Get A California Used Car Dealer License?
  • Complete a California Dealer License Application
  • Undergo a criminal background check
  • Purchase a California Motor Vehicle Dealer Bond
  • Submit and Receive Your California Auto Dealer License
  1. Is There Any Merit To Reconditioning An 80,000 Mile Car?

No, ideally you will want to choose something under 80,000 miles and take reliability into account.

  1. Once A Dealer Is No Longer In Business, How Long Are You Required To Keep Records?

This will vary from one state to another. The California Code of Regulations (CCR) Title 13 §§272.00 mandates dealers to retain all business records relating to vehicle transactions for not less than three years.

  1. Will Rapid Changes In Consumer Behaviours Affect Dealer F&I Vehicle Service Contract Profitability?

Yes, it will affect F&I products including vehicle service contract sales, which are very vital to dealers’ long-term overall profitability.

  1. What Are The Types Of Used Car Dealer Licenses You Can Get In California?

The State of California has two types of Dealer licenses for selling pre-owned vehicles; Retail and Wholesale.

  1. How Do You Know If A Vehicle Has Been In A Bad Accident?
  • Checking the Car for Physical Damage
  • Paint Issues
  • Replaced parts
  • Examine panel and door gaps to see if they fit together.
  • Unpainted surfaces or rust
  • Welding marks
  • Fresh undercoat
  • Visible creased panels
  • Mismatching or missing screws and fasteners
  • Uneven tire wear
  • Car doesn’t drive straight
  1. What Are The Advantages Of Having A Dealer License?
  • Access to dealer-only vehicle auctions
  • Acquiring vehicles at wholesale dealer prices
  • Acquiring vehicles with auction company financing
  • Paying no sales tax on your vehicle purchases
  • Paying no registration fees on your vehicle purchases
  • Using dealer plates to drive vehicles without registering them
  • Earning money from what you enjoy
  • Writing off your expenses
  • Saving significant money buying vehicles for yourself, friends and family
  • Selling locally or exporting vehicles to other countries
  • Purchasing cars at auction, then selling them via eBay, Craigslist, or through your own company website
  • Brokering vehicles without investing your own money
  • Owning a vehicle you enjoy, then selling it at a profit in the future
  • Selling cars legally
  1. What Kind Of License Do You Need If I Want To Buy Truck Engines And Parts To Be Solely Exported Overseas?

Note that you can source and buy engine parts as a private party as long as you pay state sales tax. Aside from that, any home business license and registration with the board of equalization will do. However, note that if you acquire a business license, your local city might not allow you to store the engine parts at home, and you might be expected to get a separate warehouse/storage for that.

  1. We’ve Often Heard That Black Cars Are Hotter in the Sun, But Is It Really True?

Yes, darker paint colors, especially black, are known to absorb more of the heat from the sun and lighter paint colors will reflect it. It simply entails that when parked in similar conditions the cabin of a darker-colored car will heat up faster and get hotter than the cabin of a light-colored car.

  1. What Is The Cost To Obtain A Wholesale Dealer License?

Licensing requirements for wholesale dealers vary from state to state. However, expect the cost of a wholesale Dealer License to be about $385-$750 in one time up-front costs and $6,200 – 15,200 in approximate annual costs.

  1. Do You Need To Be Concerned About Smogging A Vehicle?

Yes, most states require vehicle emissions testing every two years, but not every vehicle requires a smog check. Have it in mind that vehicles exempt from the emissions inspection program are those that are less than two years old, 26 model years old or older, registered with historic plates, or are electric-powered only.

Solomon. O'Chucks