Wholesaling a car means selling it to another licensed dealer or through a dealer auction instead of to a retail customer. Dealers wholesale cars for a few main reasons: they bought the car well enough to profit without reconditioning it, the car can't legally be retailed in California but can be sold in other states, or it has sat too long and the money is better used elsewhere. California law treats the two kinds of sale differently. Equipment and smog rules that apply to retail sales don't apply to a sale to another dealer (Vehicle Code §24007).
Educational information only. This article is not legal or financial advice.
In this article
- Wholesale vs retail
- Why dealers wholesale a car
- California emissions: the big driver
- Where wholesaled cars go
- Why retail is still the goal
- The paperwork
- Frequently asked questions
Wholesale vs retail
| Retail sale | Wholesale sale | |
|---|---|---|
| Buyer | A member of the public | Another licensed dealer, or a dealer auction |
| Equipment and smog compliance | The dealer must sell a vehicle that complies, with a valid smog certificate | Not required for sales to another dealer (Vehicle Code §24007) |
| Extra profit opportunities | Trade-ins, financing, GAP, service contracts and other add-ons | Usually just the sale price |
| Speed | Can take weeks | Often days |
| Sales tax | The dealer reports sales tax on the retail sale | No tax on a sale for resale, with a resale certificate |
Why dealers wholesale a car
From experience (Garrett Eddings, professional opinion): There are several reasons to wholesale a car. Sometimes you bought it so well that you know you can send it straight to auction and make a good amount of money without doing any mechanical work.
From experience (Garrett Eddings, professional opinion): Sometimes you just don't want to sit on a car. I once had a vehicle on my lot for just under 90 days, got tired of looking at it, and ended up wholesaling it for more than I was going to retail it for. That's not an everyday occurrence, but when you buy the vehicle correctly, you have options like that.
| Reason | What's going on |
|---|---|
| Bought it right | The margin is already there at wholesale, so recon time and money aren't worth spending |
| Can't retail it in California | It needs emissions work or parts that are costly or unavailable in California, but it's sellable elsewhere |
| Aged inventory | It's past your target turn of 30 to 90 days, and the money is better used in the next car |
| Wrong car for your lot | It doesn't fit your buyers, price range or financing options |
| Recon would cost too much | Fixing it would leave you upside down at retail |
California emissions: the big driver
From experience (Garrett Eddings, professional opinion): Emissions laws come up all the time. A car might not be legal to retail in California, but in other states they can easily put an aftermarket catalytic converter on it and sell it just fine. There's a lot of heavy regulation in California, and I think that's one of the main reasons to wholesale a car.
Here's why:
- Retail compliance. A California dealer can't retail a new or used vehicle that doesn't meet the Vehicle Code's equipment requirements, and must provide a valid smog certificate at the sale (Vehicle Code §24007(a)–(b)). Sales to another dealer are exempt.
- Catalytic converters. In California, an aftermarket catalytic converter must have a California Air Resources Board (CARB) exemption, issued as an Executive Order for that part. Federal EPA-compliant converters that are legal in many other states can't be installed in California. A car that needs a converter can cost far more to make retail-ready here.
So the car goes to an auction or a dealer who can sell it where it can be repaired and registered more cheaply.
Where wholesaled cars go
- Dealer auctions: Manheim, ADESA, America's Auto Auction, EBlock, CarMax Auctions. See California dealer auctions.
- Online dealer marketplaces: ACV Auctions, OPENLANE and others, which reach buyers nationwide. See best auction sites for new dealers.
- Direct to another dealer: a dealer who specializes in that kind of car or sells in another state.
- Wholesalers: licensed wholesale-only dealers who buy trade-ins and move them on. See wholesale dealer license.
Why retail is still the goal
From experience (Garrett Eddings, professional opinion): The reason you're hoping for a retail buyer is the chance at another trade-in, and the chance to make money on add-ons like GAP insurance and aftermarket services. But if all else fails, buy your vehicle correctly, so you can wholesale out of it properly and still keep your money.
The paperwork
| Sale | Form | Who completes it |
|---|---|---|
| Dealer sells directly to another dealer | Wholesale Report of Sale (REG 396) | The selling dealer |
| Car sells through an auction | Auction Wholesale Report of Sale (REG 398) | The auction |
CDTFA also says that when you sell a used vehicle to another dealer for resale, you don't report tax on that sale. Keep the buyer's resale certificate. See What is a seller registration number?
Frequently asked questions
What does it mean when a dealer wholesales a car?
The dealer sells it to another licensed dealer or through a dealer auction instead of to a retail customer, usually because it can profit without reconditioning, the car can't easily be retailed in California, or it has sat too long.
Why would a dealer wholesale a trade-in?
If it doesn't fit the lot, needs too much reconditioning, can't easily be made retail-legal in California, or the dealer bought it well enough to profit at wholesale.
Do wholesale cars need a smog check in California?
Vehicle Code §24007 exempts sales to another dealer from the retail equipment and smog-certificate requirements. The dealer who later retails the car must meet them.
Is wholesaling a car bad?
No. It's a normal part of managing inventory. Buying correctly is what lets a dealer wholesale a car without losing money.
Related questions
- Where do you buy cars wholesale in California?
- Is it worth buying cars at auction?
- How do you start a car dealership with little money?
- Back to the California Dealer License FAQ
Next step: Wholesale dealer license guide · Start the 6-hour course for $99
Resources
- California Vehicle Code §24007, dealer equipment and smog requirements (Opens in new window)
- Ozone Transport Commission: aftermarket catalytic converter policy guidance, CARB vs EPA (PDF) (PDF opens in new window)
- CDTFA Tax Guide for Motor Vehicle Dealers (Opens in new window)
- California Bureau of Automotive Repair: Smog Check (Opens in new window)
Sources: Vehicle Code §24007 (Opens in new window) · OTC aftermarket converter guidance (PDF opens in new window) (CARB Executive Order requirement) · CDTFA dealer tax guide (Opens in new window) (wholesale sales and Wholesale Report of Sale). Verified 2026-10-16.
This article is for educational purposes only and is not legal or financial advice. Emissions rules change; check current CARB and BAR requirements before buying or selling. The instructor notes reflect one instructor's professional experience and opinion.