As a car dealer, you may have customers who choose to work with an auto broker. Although these brokers may work directly with the buyer, it's a good idea for dealers to develop a relationship with the actual broker. So, what do you need to know about these professionals and growing your business through these relationships?

Understanding the Difference Between the Dealer and the Auto Broker

There are significant differences between an auto dealer and an auto broker. It helps to break this down to better understand these variations.

Role and Function

An auto broker acts as an intermediary between the buyer and the seller. They work on behalf of the buyer to find the desired vehicle, negotiate the price, and handle the paperwork and logistics of the transaction. They typically have access to a wide network of dealerships and can offer a range of options to the buyer.

An auto dealer is a business that buys and sells vehicles directly to consumers. They operate their own dealership and typically have a physical location where customers can visit to view and purchase vehicles. Auto dealers usually have a specific inventory of vehicles they own and sell.

Ownership of Vehicles

An auto broker does not own the vehicles during any part of the process. Instead, they help by locating a vehicle that matches the buyer's requirements. They use various sources, such as dealerships, auctions, or private sellers.

An auto dealer owns the vehicles they sell. They acquire vehicles either through trade-ins, purchases from individuals, or by buying from car manufacturers or auctions. The dealer is responsible for maintaining the inventory, financing options, and selling the vehicles directly to customers.

Pricing and Fees

Auto brokers typically charge a fee or commission for their services. This fee is separate from the price of the vehicle and is agreed between the broker and the buyer. The broker's goal is to find the best deal for the buyer, taking into account their preferences and budget.

Auto dealers make money through the sale of vehicles. They set prices for their inventory based on factors such as market value, demand, and their own profit margin. Dealerships may also offer additional services, such as financing, warranties, and maintenance, which can be included in the overall pricing.

Customer Relationships

Auto brokers primarily focus on the buyer's interests and work on their behalf to find the best vehicle options. They provide personalized services, research, and guidance throughout the buying process. Brokers often aim to build long-term relationships with customers and may assist with future vehicle purchases.

Auto dealers interact directly with customers, both in person at the dealership and online. They offer a range of services, including test drives, vehicle inspections, trade-in evaluations, and after-sales support. Dealers aim to establish relationships with customers to encourage repeat business and referrals.

What is an Auto Broker?

An auto broker can save a consumer a great deal of time. When the car buyer gives them a brief, the broker can access a range of dealerships or distributorships. They'll search for a specific make and model with certain features or within a given price range. They'll then get back to the consumer with the results.

Some auto dealers also set themselves up as auto brokers. They typically need an auto dealer license in place, although not all states have this requirement. The application process can vary from state to state.

There are many benefits associated with being an auto broker within your own dealership business:

• Significant income through commissions following a sale or a lease
• Deeper understanding of your industry and greater knowledge to give potential buyers
• Network of contacts across the industry, including finance companies and other dealers
• Expanded knowledge and skill sets to negotiate better deals and become more valuable in the eyes of a consumer.
• Access to dealer plates that you can use to drive inventory vehicles in certain states, like California Finally, you can set your own hours and work independently.

Finally, you can set your own hours and work independently. You won't need to build up your own inventory with all the associated costs and pressures.

How to Become an Auto Broker

To become an auto broker, you'll need to check with your state DMV to determine any licensing requirements. For example, in California, you need to be a licensed retail dealer before you can add an auto broker endorsement to your license. You'll need to go through a three-step process to get this endorsement:_[1]

• Take the DMV pre-license training course online
• Answer the 40-question test through the DMV portal
• Apply for the dealer license with broker endorsement

The cost may vary from state to state, but you only need to pay $100 per year for your broker endorsement in California. You can ask the DMV to remove this from your dealer license at any time.

How Auto Brokers Make Money

An auto broker can:

• Sell vehicles and trigger lease deals in any state, in person or online. Commissions will typically amount to a percentage of the vehicle's purchase price or lease agreement.
• Charge customers a fee for their services, which would then be in addition to any commission they might earn from the dealership. Such a fee could be a flat rate or a percentage of the purchase price.
• Earn volume bonuses from some dealers when they sell a higher volume of vehicles in a certain amount of time.
• Upsell by offering different products or services. These could include insurance, extended warranties, and even vehicle accessories.
• Offer advertising or marketing services to dealerships and charge a fee for doing so.

Some brokers also specialize in lease management, earning revenue by being the intermediary between the dealership and the customer. This solution will involve payment for work, such as handling all the contracts or negotiating terms.

Earning potential will vary based on several factors. It can often depend on a broker's location as well as experience, while market conditions could affect income.

Auto brokers also need to promote their services, which may involve local advertising or search engine optimization work. The state may also have a list of licensed auto brokers on the DMV site.

Work With the Best in the Industry

Whether you are a car dealer or an auto broker with a dealer license, consider ACV Auctions when you're looking for inventory on behalf of your customers. ACV is the leading online car auction for dealers, allowing you to source and buy vehicles nationwide with confidence, trust, and transparency. You can get the most up-to-date wholesale pricing anywhere in the market, with real-time data to back it up. This will give you the confidence to put your best price forward to your customers. Register with ACV Auctions to get the process started.

Sources

1. What is an auto broker, and how do you become one? Retrieved in July 2023 from https://dealer101.com/what-is-an-auto-broker/