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Will Phasing Out Wholesale Licenses Affect Used Car Dealerships?

Posted by Todd Bryant | Wed, Aug 02, 2017 @ 10:39 AM

used car dealerships

As of July 1, the Washington State Department of Licensing (DoL) has stopped issuing wholesale auto dealer licenses. This change was set into motion after House Bill 1722 was passed in mid-April. The bill also includes provisions to stop the renewal of wholesale licenses on July 1, 2018 and the entire removal of this license category on July 1, 2019. The reform of wholesale licenses over the next two years is not expected to disrupt used car dealerships.

But what does all of this mean for retail operations?

 

Read on for more information regarding why the license is being phased out, what the new licensing rules are, and what used car dealers can expect.

Why the Washington Wholesale Dealer License is Being Phased Out

Over the last three years, Washington has seen the number of issued wholesale licenses increase from 237 to 775. Challenging the regulatory process even further, there were over 240 complaints  against holders of such licenses in just one year (2016) with a majority of such complaints coming from outside of the state.

used car dealershipsThose complaints came both from used car dealers as well as consumers and included allegations of vehicles with washed titles, car theft, bad checks written by dealers, misrepresentation, and odometers that were tampered with.

This situation is not unique to Washington. Roughly half the states in the U.S. either do not have such a license type or have eliminated it due to the ease with which it lends itself to fueling illegal auto schemes. This is mostly due to the relatively low bar in terms of license requirements that applicants have been required to cover.

While the DoL tried to address this situation through a number of new laws passed in 2016, wholesalers intent on using the license for other purposes were not deterred. And even though such dealers needed to have a surety bond, as all other dealers, collecting compensation on bond claims also proved to be difficult.

Due to all these factors, the DoL decided it would be best to remove the license altogether.

Changes to New and Used Car Dealerships in Washington After House Bill 1722

Apart from gradually phasing out the Washington wholesale dealer license over the course of the next three years, House Bill 1722 includes a number of additional provisions.

For example, new and used car dealerships who wish to remain in business may transition to a retail dealer license with the caveat that they fulfill its requirements. These include having a business location that operates daily and compliance with all business site requirements. Of course, an auto dealer bond is also required and all supporting paperwork such as a personal criminal history statement must be duly completed as well.

HB 1722 also imposes limitations on bond claims against wholesale dealers. Thus, dealers who have had business with a wholesale dealer are not allowed to file claims against bonded wholesalers. Currently, such claims can only be filed by consumers who have losses or damages as a result of such a dealer's actions.

This provision seems to be included to limit the amount of claims that can be filed, but also to address the parties that have most suffered from fraudulent wholesalers, namely — consumers.

Regulation or Elimination?

Some have criticized the government in Washington for opting to entirely scrap the wholesale dealer license, instead of putting in stricter requirements and regulations. Yet, it is highly unlikely that this move will lead to negative effects for used car dealerships.

In fact, the opposite may be true. Not removing this license — as is the case in New Jersey where wholesale practices mirror those in Washington — consistently leads to damages for consumers. States, on the other hand, who have removed this license are not confronted with such issues, and there are no known instances of used car sales plummeting after the phasing out of these licenses.

The reasons for this are numerous. On the one hand, the slightly stricter requirements that come with applying for a retail dealer license have a deterring effect on those applicants who want a license for the wrong reasons. For example, with a retail license, there is no chance for dealers to be absent — as was the case with wholesalers who had “ghost offices” which they never used while they went about their business in other states.

Moreover, claims against the bonds of wholesalers have largely been unsuccessful due to the limitations on tracing these dealers and processing complaints. Yet, claims against retail dealers are much easier to address used car dealershipsand there are typically fewer complaints altogether made against retail dealers. As such, the surety bond requirement for auto dealers is what it is supposed to be — a guarantee that consumers will be compensated if they should suffer losses or damages.

Due to all of the above, sellers of used cars in Washington have no reason to be concerned that their sales will be affected negatively. If anything, removing the Washington wholesale dealer license may help boost trust among consumers and improve business, rather than the opposite.

What do you think? Will the phasing out have any impact on used car dealerships? Let us know in the comments!

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Todd Bryant is the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping auto dealers get bonded and start their business.

Topics: Auto Dealerships

Written by Todd Bryant

Todd Bryant is the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping auto dealers get bonded and start their business.