How to Start a Used Car Business: The Legal and Business Requirements

Starting A Used Car Business:

The Legal and Business Requirements

You may have questions such as what are the requirements to buy and sell used cars? Or more directly, who needs to be registered as a motor vehicle dealer?

In general, like any business, a used car sales business comes with many regulations and rules which must be followed and adhered to. Furthermore, depending upon each individual jurisdiction, the rules and regulations can vary greatly.

Every individual who is the used car sales business, or in trading of motor vehicles, whether as an individual or part of a large enterprise, needs to follow certain rules.

How do I get registered as a motor vehicle dealer?

This process will vary slightly from jurisdiction to jurisdiction but in general it consists of essentially the same requirements. You must apply to the appropriate department or division of government to obtain a permit or license to operate as a motor vehicle dealer. The Department of Motor Vehicles or provincial centres like Access Nova Scotia can get you on your way.

For example, in Ontario, Canada, many different classes of motor vehicle dealers exist. Each particular class requires different registration requirements. These requirements can be obtained from the OMVIC and are explained in the certification course. Your application for the appropriate type of registration must be completed and sent to the OMVIC. In time you will receive your certificate.

General Dealer (new and used motor vehicles) – This is an enterprise which buys, sells, trades, leases or exchanges both new and used vehicles. Becoming a general dealer is facilitate if you are an OADA/TADA member. If you are not, in order to be assigned a General Dealer license you will need proof of an existing motor vehicle manufacturer sales and service agreement. A business which buys, sells or leases both new and used vehicles.

General Dealer (used motor vehicles) – This is similar to the above and is a residue category, that is, dealers will fall here if they do not qualify under the other categories.

Wholesaler – Wholesalers in this sense operate only with registered dealers or other companies who are excluded from registration requirements. Wholesalers do not conduct business with the general public, but rather with dealers who have the appropriate licenses, such as the OMVIC General Dealer license.

Exporter – As the name implies, is this someone who exports vehicles outside the province, Most jurisdictions have a similar category with particular requirements.

Broker – A broker is a middle man or woman who assist the exchange of a motor vehicle on behalf of the vendor and purchaser. They typically do not affiliate directly with dealers, as they would otherwise have regulations to follow according to affiliation registration requirements.

The educational requirements for becoming a dealer in Ontario exemplify those found elsewhere in Common law jurisdictions. Specifically, in Ontario the OMVIC Certification Course is typically a requirement to receiving a grant of a dealership license or registration. Conversely, if someone who has not completed the course but has ran a dealership for several years, may qualify for a dealer registration or renewal. Such a rule is pragmatic business practice and such allowances are made in many jurisdictions. Some places do not even require a course, so check with your government department.

How to get into car sales and be legit?

Again this question is partly answered above, but other considerations are also important. Being legit means not contravening your legal obligations throughout your career as a car salesman. If hold out something to be true in any commercial context, you are potentially incurring responsibilities and obligations. The biggest legal conflict occurs at the POS or point of sale. This is when you are transferring ownership in a vehicle to a customer. What legal warranties or guarantees are included with the purchase? Normally a warrantee must be fairly explicit in order for a customer to later assert a problem with the vehicle. However, there are times where a misrepresentation by the dealer can give the customer certain rights when it comes to this. Never assume that the vehicle is always sold as is, where is, unless you explicitly make that clear.

If I sell a car for a profit, do I need to declare it for tax purposes?

If you sell a car at any point in your life, dealer or not, it factors into tax considerations in most jurisdictions. Once you sell vehicles for profit as a dealer or wholesaler then of course you have to declare any business profit on your tax return like you would report employment income. Fortunately in Canada at least, there are many incentives for small businesses to avail of, so your reported income won’t necessarily be a negative. You may be able to obtain many credits on account of you being a small business owner. Lawyers and accountants are the professionals that should be accessed with regards to this question. Only these professionals who are keen to your particular jurisdiction will know exactly what rules and regulations govern, and as such, they can help you immensely with respect to keeping more of your profits, paying less taxes, and getting more government subsidy and credit.

Does a motor trader have to have a trade insurance policy?

Again this particular question is a tricky one. Insurance rules and regulations typically require that any motor trader have a trade insurance policy. However, there are many ways in which this requirement can be satisfied. Depending upon your jurisdiction, your business can be covered for this requirement under other policies or schemes that are already in place. If your business is set up with the help of a Business development corporation, or obtains funding through other government programs, there are likely ways in which a trade insurance policy can be obtained indirectly. This will likely cost you less, plus will keep you wholly legal.

How many vehicles can I sell without a dealer’s license?

The typical number is 3-5 within a given time frame, typically a year. Again this varies from province to province, and state to state, but in general it is wise to email or check the website of your jurisdictions Department of Motor Vehicles or equivalent. Furthermore, you can often “get away”, so to speak, with selling many vehicles in any given year if it is done informally, either through private sales, or on websites like kijiji and similar. Exchanging and trading in motor vehicles is not necessarily a business enterprise and will not incur the business regulatory framework unless it is exactly that. Commercial enterprise can sometimes begin at least in the guise of private activity.

How much does the dealer’s license costs?

Anywhere from $100 to several hundred dollars. Of course, this license is often just one small cost of a bundle of fees and expenses that go with beginning, legalizing, and incorporating a business. Be prepared to invest up to a thousand dollars in escaping the initial red tape and regulatory hold-up all too common with entrepreneurial ventures.

What cars sell best in my region?

This is a great question, and is one that is done with ease today with the virtue of the internet. Research your local classifieds and see which vehicles have the most views. Keep a tally and record which models and years are popular, and which sell quickly. With sites like eBay you can organize it by price, post vs. sell dates, and etc. These types of tools can allow you to calculate which cars sell and for how much.

Another method of seeing which cars are popular in your region is to go to a shopping mall or grocery store. These places usually have a mix of people from all walks of life, so the parking lots offer a tremendous sample on which to base car popularity. A few minutes counting in parking lots can help you plan for high-turnover inventory.