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What is the difference between an auto dealer and an auto wholesaler?

Dealer auction cars waiting to be acquired by auto wholesalers

A car dealer and an auto wholesaler function and operate in different ways. An independent used car dealer is typically engaged in retail sales, and focuses on selling vehicles directly to consumers. An auto wholesale dealer will generally operate on a larger scale and focus on selling vehicles in bulk to other businesses rather than individual consumers.

Retail auto dealers commonly have showrooms or lots where buyers can browse, test drive, and purchase vehicles. Retail dealers also often offer financing options to help customers purchase vehicles through loans or leasing arrangements. In addition, car dealerships will normally provide maintenance, repair, and other after-sales services.

Auto wholesalers, on the other hand, may not have traditional showrooms. That’s because wholesalers’ primary customers are other businesses in the automotive industry. In order to reach those buyers, wholesale auto dealers will typically visit dealer-only auctions or leverage online wholesale marketplaces for transactions with other dealerships, rental agencies, or automotive businesses.

Wholesaler dealers often offer volume discounts to buyers purchasing multiple vehicles, as opposed to selling each unit one at a time.

In a nutshell, car dealers primarily cater to individual consumers, providing a retail experience with showrooms and additional services, while car wholesalers focus on bulk sales to other businesses within the automotive industry.

What are the requirements for a wholesale car dealer license?*

In order to legally sell used vehicles, both retail and wholesale auto dealers must first be properly licensed in a given jurisdiction. These laws vary state-by-state and act as a consumer protection against unfair or fraudulent dealer practices.

That said, a wholesale dealer license typically involves less stringent requirements than a retail dealer license, as the focus is on selling cars in bulk, rather than to individual customers.

A retail auto dealer license allows the license-holder to sell new or used vehicles directly to the general public. Generally, auto dealers are required to submit an application, provide proof of insurance, complete a background check, attend training courses, and obtain a surety bond.

A wholesale auto dealer license is a license that allows individuals or businesses to buy and sell vehicles wholesale, meaning they can sell cars exclusively to other dealers or dealer-only auctions. Wholesale dealers are not allowed to sell to the general public.

These licenses are typically required for businesses that purchase cars at auction or from manufacturers to sell to other dealerships as part of the dealership network. Wholesale auto dealer licenses may also come with different rules and regulations depending on the state or location where they are granted.

Where do auto wholesale dealers find or sell used vehicles?

Traditionally, dealers would contact wholesalers directly or take vehicles to physical auctions. While that process is still in place, the landscape has expanded with the emergence of various in-person and online channels. Let’s take a look at the three most common sources for selling or buying wholesale used cars.

Auction to Auction

One common method in wholesale auto is the “auction to auction” model. Here, wholesale dealers purchase used vehicles at auctions and aim to resell them at a profit in subsequent auctions. This process involves a keen understanding of market trends, as the value of specific models can fluctuate. Additionally, the ability to perform automotive restoration or detailing plays a crucial role in enhancing a vehicle’s appeal for resale.

Auction to Dealer

Another prevalent approach is the “auction to dealer” model, where wholesale dealers buy vehicles at auctions and sell them at a profit to used car dealerships. Similar to the auction-to-auction model, success hinges on recognizing shifts in demand and value, coupled with the potential for refurbishing auction finds. This method provides a bridge between the wholesale market and local dealerships, facilitating a smoother flow of vehicles through the automotive ecosystem.

Dealer to Dealer 

The “dealer to dealer” method involves purchasing used cars from dealerships and reselling them to other dealers at a profit. This process often takes place over the phone, with transporters handling the logistical movement of vehicles between locations. The ease of communication and coordination in dealer-to-dealer transactions contributes to the efficiency of this approach.

BONUS RESOURCE: Check out our list of the Top 8 Inventory Sources for Dealers

What factors influence a used car’s wholesale value?

The biggest factor influencing a used car’s wholesale value is its condition. Dealers must carefully assess whether the vehicle is in “mint” condition, meaning pristine and well-maintained status, or if it falls into  categories of good or poor condition. The condition of the car significantly impacts its market desirability and, consequently, its wholesale value.

Another element in the equation is the age of the vehicle. The age of a car plays a significant role in determining its wholesale value, reflecting the natural depreciation that occurs over time. Dealers take into account the model year to gauge the car’s place in the market and assess its overall demand among potential buyers.

To refine the valuation process, dealers turn to industry-standard databases such as Kelley Blue Book and Edmunds. These databases provide a comprehensive and unbiased assessment of a vehicle’s current estimated value, drawing on a wealth of market data. 

Armed with these insights, dealers gain a clearer understanding of the fair market value of a used car, enabling them to set competitive prices and make informed decisions during wholesale transactions.

AFC floorplan financing makes wholesale a whole lot easier

With floorplan financing from AFC, dealers can make the most of their wholesale used car approach without putting undue pressure on cash flow. And with our sister company’s wholesale used auto marketplace app OPENLANE, options like floorplan financing are built in, making the process even easier. 

Ready to get started with your floorplan financing or wholesale used auto strategy? Contact us today to start your application.

* Requirements vary by jurisdiction, please consult the rules in your jurisdiction for the specific requirements and rights for a particular license. 

“AFC” refers to Automotive Finance Corporation, Automotive Finance Canada Inc., and AFC Cal, LLC in their respective jurisdictions. All California transactions are through AFC Cal, LLC. California loans will be made pursuant to Department of Business Oversight California Finance Lenders License. Canadian transactions are through Automotive Finance Canada Inc.