Used Car Sales — Orange County

Cruising the OC in a cool ride is part of the OC lifestyle, and a lot of people make a good living doing it.  So we thought it would be a good idea to put something up about how you can supplement your income by flipping cars.  Although it may come as a surprise to some people in the government that a lot of people have been doing this as a part time gig, we don’t see anything wrong with it.  But because of a few bad actors and effective lobbyists hired by the big dealers, it’s not exactly as easy as it seems on those TV shows.   And if it seems like we don’t seem to know what we are talking about, that’s because we don’t.  This webpage should not be considered a substitute for legal, or business advice.

Classic Car 1957 Mercury.    Finding a buyer who can appreciate a classic car is the hard part.   Photo Cred Hugo90 http://www.flickr.com/photos/hugo90/

Classic Car 1957 Mercury. Finding a buyer who can appreciate a classic car is the hard part. Photo Cred Hugo90 http://www.flickr.com/photos/hugo90/

Is car flipping legal in California?

Well, first things first.  The answer to this question is that we don’t really know.  We are not attorneys and you should not consider anything on this site as legal advice, or good advice for that matter.

On one hand, in our opinion there should be nothing illegal about buying cars, selling cars, or making a profit on the sale of a car.   If you happen to buy a car every so often, and sell it for a bit more money than you originally paid we don’t see how that can be illegal.  But all the people who are car flipping on the side are taking a bite out of the car dealers (read big political donors) profits.  That may be the motivation for the DMV’s crackdown on what they call CurbStoning.  Just like Scalping sounds more derogatory compared with ticket seller, the term curbstoner seems to vilify people who make a few bucks fixing up cars.  The video below was produced by the DMV to illustrate the problem and how they are cracking down.

 

Okay, so what’s the difference between being an evil unlicensed car dealer and a private party seller in California?  We couldn’t find a precise definition of what constitutes a car dealer, but according to DMV’s drivers handbook, you are defined as a dealer and must be licensed when you are “engaged wholly or in part in the business of selling vehicles or buying or taking in trade, vehicles for the purpose of resale, selling, or offering for sale, or consigned to be sold, or otherwise dealing in vehicles, whether or not such vehicles are owned by the person.”   That’s a great definition in terms of sentence structure and grammar, but based on this broad definition every person who personally sells their car they own could be defined as a car dealer and needs a license.  For instance, what about the guy who likes to work on his old car and gets it repainted so he can get a better price, is he a dealer?  What if he only does this once every couple of years?  What about grandma who advertises her old car in the pennysaver after she purchased this years Cadillac?   Does she have to get ripped-off on the trade in at the dealership.  The definition is not clear to us.  Since there are no precise limits on the value of transactions or number of transactions, if he makes a profit, it’s like a business and thus you might need a license.

But enforcement seems to be based on getting the most blatant violators so if you flip a couple of cars a year, you might be in the clear.   Based on the DMV’s press release and their photos, we can infer they are going after (1) sellers who multiple cars by placing ads on the internet.  Remember on Craigslist, they can put your phone number in the search box, and if a bunch of ads come with the same phone number that might be a red flag.  And (2) parking them on streets where people don’t want to see them.

So what’s the implication of being a private party seller verses an unlicensed illegal car dealer?  This distinction didn’t have much meaning until the anti-curbstoning legislation was passed in 2008 AB 2042 “This new law allows law enforcement officers to impound vehicles that are being sold by unlicensed dealers.”–DMV.  So it’s yur local police that enforce the law.  Some cities may devote more resources to enforcement than others.

To understand the all the implications of the text, from what we have read the deal is that you will have problems getting the car out of impound.  You have to show ID and insurance as the registered owner, but many car flippers don’t register or insure their cars because they only plan to own them for a couple of weeks.  Also you will have to pay for a citation for violating AB2042, all parking tickets, towing charges, and impound fees.  In other words big bucks.  The law seems to have been inspired by curbstoners taking up all the parking in many urban environments.  It’s not clear if the cops can take your car if parked legally on private property on a lot not for public use.  (read the bill)

To be fair, they do have a point and is doing a public service.  There are some bad actors who do cheap fixes on used cars and sell them to unsuspecting buyers.   In the reports we read, the California DMV found some cases where cars advertised looked good but they were salvage cars from another state.  The frames were repaired wrong, which could cause an accident if the welds broke.  Also they had not replaced airbags that had been deployed in previous accidents.  And in some cases, the curbstoners certainly did not know what they were doing.  They got the car for a deal and were just reselling it to make a few extra bucks.  Another practice that unlicensed dealers engage in is Auto Title Kiting–A car is purchased usually for cash and the unlicensed dealer does not put the title in her name.  She avoids the regular costs of owning a car, see below, and since it takes weeks for parking violations to get to the old owner’s address, they just park wherever they want.  They stick the cost of tickets on the old owner or new owner.  Another problem is that they may not take responsibility for accidents.  They just run away.  From personal experience, I know this can be a real pain.  I recall explaining to the GG police officer that I wasn’t driving the car, I sold it to some dude who paid cash and he said he would straight to the DMV to put the car in his name.  Fortunately, I didn’t match his description otherwise I would have probably gone to jail.  He was speeding and drove the car into someone’s house.

The bottom line, is that if you want to do more than occasionally flip your ride for a few extra bucks, you might want to consider getting a dealers license (see below). The TV news reports we saw seemed to be a re-reading of this press release.  Also see this blog post from a lobbyist of a car dealers association that got the 2008 law passed.

So what business are you really in?  Although most people would say car flippers are in the car business, another way to look at it you are really in the information business.  You need to be able to quickly assess how much you could get for a car, how long it will take you to unload it, what it will cost to get it fixed up, and what you would be willing to buy it for.  You need to know cars. Perhaps a better name for this business is auto arbitrage.

Step 1 Figuring out  Car Values

Don’t get talked into buying a car from a don’t wanter unless you know what you’re getting into.  From what we understand, you will get stories about how they are unloading it at wholesale or a sob story about how they just have to let it go for practically nothing.   There is no real definition of that term wholesale, as you cannot buy wholesale from the factory–you have to be a new car dealer to do that–and there is not one used car wholesaler that dominates sets prices.  Salesmen have been shouting that they offer cars at wholesale cost for a long time.  They even will show you an invoice.  This is a trick to make the retail customer feel good about how much they are paying for the car.  And if there is a sob story about grandma passing, you might just be dealing with another flipper trying to unload it on you.

Before you buy a car, look up it’s value on a site like Kelly Blue Book but remember that this is an estimate of the fair market selling price.  According to their website “Used values are determined by a proprietary editorial process. This process starts with a thorough analysis of all collected data along with historical trends, current economic conditions, industry developments, seasonality and location.”   The key point is that it’s just an estimate; and most buyers will feel good only if they can buy below bluebook.  It might be too high or too low; and prices only go back for ten years.  If you need to sell the car for a more than the Blue Book Private Party Value, to make a profit you should re-consider buying the car.  You can also see what other dealers are asking for by going to ebay motors ebay.com/motors .  But don’t take advertised price at face value.  Buyers usually try to negotiate private party sellers down, and some car dealers will price cars low to get people on their lot.

If you have the money to spend, one service has an app for that.  It’s called BlackBook  Their app allows you to scan in the VIN plate with your iphone, and then get a bunch of info such as an estimate of wholesale price, retail price, and a car fax report to see if the vehicle has a salvage title.  (Commercial on youtube)  We are not sure how much the service costs, but it looks pricy.  Another app that you might want to consider is  CheckThatVin.com as their name suggests, you can check the vin to see if you are buying a totalled car.  It costs less than $3.00/use.  Both services might be worth the investment to make sure you don’t end up a good looking vehicle that will result in litigating because you should have known it was in a totalled out.  Every year thousands of cars are messed up by accidents or floods.  This ABC story shows how cars which were sent to the junkyard after being totalled out ended up on a used car lot in another state.

Auto Flipper Costs

It is possible to loose money even though you sell each car for more than it costs.  Holding Costs.  You will need to insure the car, and if you do not have a car dealers licence from the DMV you will have to pay 8% sales tax, registration, and have the car smogged.  (One possible way to get around this is to keep the car on private property.  If the car is not registered you are not supposed to drive it on the public roads.  But this will send up red flags for most customers who will ask why you couldn’t get the car registered.)  Even if you buy the car in another state, the DMV may still require you to pay sales tax.  And the DMV knows all the tricks.  For instance, you might think you can fool them by having the seller give you an invoice for say 25% of what you paid.  They might charge you the sales tax based on a Blue Book Value.  And this low value means you can not insure the car for full value, cannot sue the previous owner for full value if you find out say that it had a cracked axle or something like that.  Welcome to California.

The other thing you have to consider is unanticipated repairs.  The problem is that a private party seller may have some knowledge about the car that’s not obvious.

 

Where do you get Used Cars at Wholesale Cost?

This section is divided into two parts.  The first part is for everyone who wants to sell used cars; and the second section is for people with a dealers auction.  There are a lot of advantages to getting a dealers license, but if you only plan on selling one or two cars a year, you might be better off not getting one.

Good Deals on Cars without a DMV Dealers License

You need to find people who need to dump their car.  (1) A  strategy that some people have employed in the past is to go through housing tracts in middle-upper income areas and find those cars which have been sitting in the driveway for a while.  They are off to the side and have not been washed for a while.  Or they have expired tags.  Why would someone let a car just sit in their driveway? Well, they may have purchased a new car, it may belong to an older person who can no longer drive, it may need a repair and they don’t have the cash pay for it, it may be car they wanted to fix up for them selves but never tot around to it.  Put a note on the cars windshield stating that you would like to buy their car, and you can pry cash if they have the title.  Let hem know in your note that they will have to hassle with advertising, having weird people show up to their house, or taking the car out on test drives.  What you are looking for is someone who will sell the car at a discount just to get it out of their sight.  Also let them know you will come to their house with all the DMV forms, and a tow truck if necessary.

(2) Just advertise on something like Craigslist.  We noticed several people advertising on craigslist.  It was the same deal as above–you can get rid of your unwanted car fast and for cash.  There were several in the general cars for sale section.  But you might want to place yours with specific brands/models.  People will search for their car’s model when they are wondering how much to sell it for.  For example “I will pay cash for your VW…”  You don’t have to buy a care from everyone who sells, just be prepared to know how much you are willing to pay and have cash for a quick sale.  It goes without saying that you need to inspect the ownership documents and seller’s ID as some people may want to get cash for cars they don’t own.

(2.1) Auctions open to the public.   Auctions Plus http://www.auctionspluss.com/home.asp This is an auction open to the public in Garden Grove.  They sell off cars that have been seized by the police or the repo man.  All cars have been smogged and passed a safety inspection.  We don’t know what kind of bargains you will find.  General Auction Company generalauction.com in Buena park.  Note that they have move their auto inventory over to the Live auctions platform, when you get to their webpage, click on the link on the right side of the website.  Sometimes their website doesn’t work.    OCPublicAuctions www.ocpublicauction.com This Santa Ana auction company sells off leased cars that have been returned and repos.  It’s a rapid fire live auction with cars going in about a minute.  Cars sold “as is” but you have an opportunity to look them over a couple days before the auction.  You need to be at least 18 and have a drivers license.  There is a $850 non-refundable deposit if you win and you have a day to pay for the car–and they take credit cards.  Robertson Auto Auctions They have atuo auctions in El Centro (East of San Diego about 3+ hours from OC) San Diego, and Arizona.  They sell autos on consignment, They also have busses and large trucks, and you can bid on-line.  www.robertsonauto.com  It looks like most of their inventory has seen better days, but with a little work you could make a decent ROI.

(3) Government Auctions–Getting a Good deal from the Government

Those people shouting on late night infomershals about getting secrets to government auctions must be on to something.  Well yes you can get a good deal, but in many cases it may not be that good once you factor in everything.  Generally, the stuff sold at these auctions are sold as is.  You have to have cash.  And while it is possible that some items may go unnoticed and sell for a really low price, this is becoming the exception not the rule.  Thanks to our friends shouting on late night TV and the internet, more and more people are finding out about these auctions.  So we are not saying that you cannot get a good deal, we are just a little skeptical.  And we haven’t send in for one of these late night offers so we are not sure what they are shouting about; but all the info should be public because it’s the government selling stuff off at the highest price they can get.  We’ve made a list of local auctions.

California State and Local Government Auctions  There are a couple of auctions sites that sell cars on the internet.  Property Room propertyroom.com sells seized cars, old police cars, motercycles and scooters.  The problem with the site is that good stuff seems to be bid up, and it’s a national site.  .  Another site is Public Surplus publicsurplus.com.  They sell surplus stuff owned by local governments in CA.  But cars tend to get bid up on this site too, and public agencies are keeping their cars longer because of the budget crisis.  But these sites are worth a look.  We haven’t run across any other true auto auctions open to the public.  There are a few, but we have a feeling that these are run by auto dealers to give the impression that you are saving big if you buy at an auction.

California Department of General Services  Office of Fleet and Asset Management (OFAM)  This is the California’s buyer of fleet vehicles for state departments.  Since it’s run by the state they can sell cars that a regular dealer would not be allowed to have on her lot, and it’s open to the public.  They sell off old vehicles and unneeded vehicles.  http://www.dgs.ca.gov/ofam/Programs/StSurplus/Auctions/AutoAuction.aspx  We looked over the rules, and to be frank did not understand them.  (There are some vehicles that must be sold out of state because utilities and cities are trying to reduce pollution.)  But they have a e-mail sign up that will give you info on what’s available.  You can check out the latest auction results at the page above and decide if you want to make the drive up to Davis. (Click here to see their funny video)  They have a lot of trucks and CHP cars–when we looked they were all made by the Detroit big 3 companies.

Federal Government Auctions 

General Service Administration (GSA) Auction is held by Norwalk Auto Auctions.  They do the big dealer auctions (see below) but they also handle this one for the GSA.  The deal only requirement is that you have to be over 18 and be able to pay for the car.  They even let you put it on credit cards.  http://www.norwalkautoauction.com/gsa-auction/index.php  (In case you were sleeping that day in Civics Class, the GSA is the buyer when a government agencies and departments need equipment.  And they handle selling stuff off that’s owned by the federal government.)  In addition to sending cars to the auto auctions, they also auction off some vehicles here: gsaauctions.gov/gsaauctions/gsaauctions –> Go to location and click on California.  –> scroll to Cars Trucks Vans …  We noticed a lot of Forest Service vehicles and large sedans.  The vehicles are not in one place, but located at various government facilities.  You can make arrangements to inspect before you make your on-line bid.

US Marshall’s Service They have an auction facility run by Apple Towing in Rancho Cucamonga. Click here to see their latest catalogs http://www.usmarshals.gov/assets/sales.htm This is stuff they seized from bad guys like Bernie Madoff and people who neglected to pay their income taxes.  Hence they sell off some really nice stuff!

Department of the Treasuary IRS Auctions treasury.gov/auctions/irs/cat_Auto2.htm  This is where the IRS auctions off vehicles that do not go to other auctions.  (We don’t ask why.)  When we checked there was nothing in CA but they had a lot of cool classic cars and hot rods.  People who don’t pay their taxes can afford nice stuff!  Bidding is done by mail.  We’re not experts but the cars we saw were worth a lot more than the minimum bid, so you might want to take a chance and mail in a bid.

 Military www.govliquidation.com  This company handles sales of military vehicles.  We noted a lot of army trucks, dump trucks, utility vehicles.  They have different things at different times.  But remember that while it might be legal for the military to drive these vehicles, they may not meet California’s clean are requirements.  So buy with caution.

(4) Make a Friend  The best work-around may be to pay a dealer to get a car for you at a dealers auction, an sell it to you at their cost.  She will want something for her time, so figure a few hundred dollars or so.

Buying Used Cars at the Dealers’ Auctions

A lot of cars go through the auctions.  They come from: New car dealers that get a trade in they don’t want to sell on their lot, fleet owners such as car rental companies that need to get rid of older cars, finance companies that need to get rid of lease returns and cars that have been repoed, donated cars that people have donated to their favorite Non Profit Organization for a tax deduction.  These owners are taking a big discount over what they could get by selling directly to consumers.  We are not sure why the discount is so large except for the fact that they just want to avoid the costs of selling the cars themselves.  This video gives shows you what an auction is like @ ADESA in LA.  And this video shows how a big dealer approaches the auction process by doing research checking the cars computer codes and CarFax.

These are the dealer auctions in our area:

  • Anaheim, Oceanside, San Diego ManHeim  They run public auctions in other states.  You need a dealers license to see their dealers site.
  • Insurance Auctions in Anaheim https://www.iaai-bid.com/auctions/branchlistingview.aspx?branchcode=131  As the name implies, this is from insurance companies that have “totaled out” a car after it’s been in a crash.  Most cars need a lot of work.
  • Carson primeautoauction.com  They have six lanes of cars being auctioned at the same time.  And they have their inventory list on line so you can see if there are any cars you are interested in buying.  They also auction cars on consignment.  Consignment cars come from fleet owners such as car rental companies.
  • Glendale southbayautoauction.com  South Bay Auto Auctions.  They have auctions every Monday.
  • Los Angeles, San Diego ADESA San Diego ADESA Los Angeles  infomercial Infomercial 2  They have a Top Line auction for nicer imports Link to Ad.  And they do condition reports that that allow you to know what’s up with the car. Infomercial 3
  • Norwalk norwalkautoauction.com
  • Riverside and San Diego desertviewauto.com Desert Auction Sales  In addition to the usual sources, they say they sell cars that people have donated.
Online Dealer Sales
ove.com  This is a website run by ManHeim.  Video 1  Video 2  They offer on line sales on Mondays that are open only to dealers.  You can preview the cars on-line, and bid.  And they say they have a buyback policy so if the car you bid on turns out to be messed-up, you will not loose a lot of money.  We assume there are fees involved.  It’s not as fast pace as the live auction, so you can think about your purchase for a while.  It seems like you might not get as good of a deal as there are many people who have had to opportunity to look and bid for cars; but we don’t really know.   They sell about 4,000/week nation wide on this system.  And they claim the arbitration rate-disputes between buyers and sellers regarding the cars condition–is less than one percent.  And according to their video, the online manager will inspect the cars to make sure they are in the condition described.  In not, you can nix the purchase.  OVE.com has an additional feature that’s called retail view Video  If a customer is looking for a certain car, you can print out a color flyer for them and pre-sell the car.  Explain that you have to buy it from your supplier so it’s not a 100% guarantee you can get the car.  Then bid at the auction.  You profit from the sales price your customer agreed to pay less the bid price and various fees.
OpenLane This is the online service for ADESA (see above). Tutorial Vidieo  You can also view cars on line and inspect before you bid Then bid via the web with their LiveBook Service
Manheim Simulcast  This allows you to view and bid at ManHeim live auctions  from the comfort of your office.  You don’t have to attend the actual auction.
SBAA LiveNet  This is the online site for South Bay Auto Auctions (see above for website)

Education and Associations

ManHeim Education   http://twi.manheimresources.com/online-workshop-lower-priced-inventory  ManHeim is one of the nations largest sellers of used cars to dealers.  This website is about online seminars which teach you how to sell to the lower priced market.  It might be helpful.  They also have videos that tell you how to use their online auction services.

Independent Dealers Association of California www.iadac.org  Theyt have a lot of info in this site that might be good for small and big dealers.

Regulation — Getting an Auto Dealer’s Licence in California

The deal is to get into a dealers’ auto auction you need to be an auto dealer licensed by the state of California.  It costs a lot to get started, but you can just sell one or two cars a year.  And it’s an open secret that some people with a large set of nice family cars get the dealer’s license so they can buy at dealer costs, avoid paying registration, sales tax, Smog expenses … and don’t really intend to make money from selling cars.  There is some rational for the system.  City’s don’t want their streets clogged up with “for sale” cars, the state wants to collect their tax revenue, and the used car dealers don’t want a lot of competition.

The DMV has four types of licenses.  You will probably want to get a Used Car – Commercial License.

We have summarized what we understand it takes  to become a car dealer so you can get an idea of what’s involved.  We figure that it will take at least a 3 to 5 months to get going; and except for the cost of renting space you should be able to get going for less than $2,000.  If you already have a business and can use part of it to qualify for a license, then it’s easy to get started.  But we would guess it costs at least $400/month to rent a space, so in that case we would guess you could get going for a bit less than $6,500 assuming you stay in business for at least one year.

1. Take an education course from an approved school, and you must pass a test on what you have learned.  Most schools guarantee that you will pass the test.  One school that we have run across can be found here http://www.motorsportsmarket.com/pages_new/dmv.asp The class costs about $125 and this company has offices in Irvine and Long Beach.  After you have a license you need to take continuing education classes which cost abut $50 and can be done on the internet.  Second School  Third School Fourth School Fifth School  The costs of all these classes are in the same ballpark; and we are not saying one school is better than another.  But they compete by offering you extras like a guaranteed pass on the DMV exam, or they will fill out your paperwork with the DMV to make sure it’s right.

2. You need to put up a Surety Bond of $10,000.  This is like insurance, you give a bonding company a percentage of the bond.  The rational is that if you are sued, the bonding company will pay off the lawsuit if you do not.  But it does not work like insurance if you have a judgement.  The people who teach the classes will tell you how to get this.  It’s cost based on your history with lawsuits but we saw some advertised as low as $200 for a $10,000 bond.  Figure that you will have to pay a bit more than that.

3. Background Check.  You can be denied for two reasons.  First if you do not disclose any convictions.  Second if you are convicted of and crime that the DMV inturpets as “a crime or committed any act or engaged in any conduct involving moral turpitude which is substantially related to the qualifications, functions, or duties of the licensed activity.”  See DMV Document  Also if you have “business bankruptcies, and/or outstanding civil judgments related to the automobile industry you may not be able to become an auto dealer or you may have to mitigate these issues.

4. Pay Fees to the DMV.  They are about $200 and and additional $70 for each deal plate, but we expect they will go up soon because of the ongoing budget crises.

5. A copy of your Fictitious Name Statement.  See our regulatory compliance page for information about this.  You will need to get it published in a community paper.

6. Copy of a lease agreement which states you can sell cars on the property.  The city or DMV may check with your landlord to make sure that they have okayed this use of their premises.  If you call up and the manager says no, just move on.  Don’t try to start this business behind their backs, because you can’t.  You will just be wasting your time and money.  Even if you don’t plan to sell cars on a property, you need to have a leased space that meets the DMV’s requirements.   It’s a chicken and egg situation.  You need to get set up in an office before you can get your license.  Most landlords understand this.  But since you cannot do business for a while, landlords may require you to sign a lease or put down a larger deposit.  Because many people get their license and then quit a month or two later, they may be hesitant to rent to you.  Unlike most other businesses, your location is not all that important.  See FN2

The location must meet their requirements which include a minimum amount of signage, designated parking spaces for your “for sale” cars, a desk, phone/fax, writing utensils, and all the office supplies you will need to keep your books, and a filing cabinet.  Sign companies know the requirements and will make up signs.  They will ask for photos and then inspect your office to make sure it meets the minimum requirements.  This area must be for exclusive use as your auto dealership work.  For instance if you have a desk in a real estate office, you need to have a separate office or area for your auto dealer work.  You must keep all books and records related to your auto dealership business in your auto dealership office.

If at all possible, you want to rent month-to-month.  See our report on leasing commercial space to get the 411 on how to get started.

7.  City Business License.  It’s your responsibility to check with the city to make sure you can use the space that you are planning on renting for this purpose.  Many cities do not allow it through zoning rules.  See our regulatory compliance page for information about this.

8. Board of Equalization Resell Permit .  You will be collecting the sales tax money for the cars you sell.  See our regulatory compliance page for information about this.

 

FN1 We are not attorneys, but it is unclear when someone who want sot make a little money by fixing up their personal car is required to have an Auto Dealers License.  There are a lot of people who buy cars drive them for a while and fix them up on the weekends.  Does this apply to them?  Is there a number of cars you can flip each year before you become a broker.  We are not sure.  But if you plan on doing a couple of cars a year, we are not sure it will be enforced, ans there are a lot of people doing this.

FN2  The rules were set up for doing business before the internet existed.  In today’s world, most cars are sold on the internet. Dealers will also park the cars they have for sale on the street in an area where people might be interested in buying them–More expensive cars are parked in more affluent areas; and more practical cars are parked in working class areas.  Technically you are supposed to keep your cars in your display area, but it seems like a lot of people do this.  Your customers never need to come to your leased location.  Also you can get a temporary license with the DMV based on photos which will allow you to get into the auctions before their scheduled inspection.

 

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