New law would revise wholesale car dealer rules

EVERETT — There are 112 holders of wholesale auto dealer licenses renting space inside the offices of Suite B at 7207 Evergreen Way.

Good luck bumping into any of them, though, because every one lives and operates in another state.

They are Washington-based in name only because the state is one of the few offering such a license. The license gets them entry into dealer-only auctions to buy vehicles to sell to retailers around the country.

The license holders landed here with the help of Dealers License Experts of Chicago. The firm, which set up shop on Evergreen Way two years ago, advertises its services online. For a fee, the company will provide the means necessary to obtain a license and comply with Washington law, which among other things mandates license holders each have their own desk, chair, operating phone and business address.

The firm accomplishes this by housing them all in Suite B of the commercial strip that also features a day care center and mixed martial arts studio. Business is conducted “By Appointment Only” and, in another legal requirement, licensees are listed in numeric order on a large sign in the parking lot.

“We thought the standards they set in Washington were fair,” said Joshua Malher, the company’s Chicago-based attorney. Everett, he said, “was a good location and we found a couple of good employees to come in and supervise the office.”

But a big change looms for this company, and ones operating in Wilbur, Moses Lake and Spokane Valley.

Lawmakers have passed a bill revising the rules in a way that could force these firms to reinvent themselves or close. Under the bill, licensees’ ability to sell to retail dealers outside Washington would be limited. And there can be no more than three licensed wholesale dealers sharing office space in the same building.

The bill is awaiting Gov. Jay Inslee’s signature. If signed as is, it would take effect immediately.

“This bill effectively takes their livelihood away from them,” Malher said of the company’s clients. “Obviously our business won’t have much purpose in existing. I can say with just about complete certainty we’ll go away.”

Not every one of the targeted businesses is surrendering.

“They didn’t put us out of business. They just made it more expensive and harder to operate,” said Maurice Kiglies, president of American Dealer Licenses of Chicago.

He said his company serves 280 licensed dealers at two locations in Wilbur with another 130 in the process of getting licenses.

“We’re going to go ahead and rent 166 offices and put three people in each office,” he said.

Malher and Kiglies each said they’ve asked Inslee to veto the emergency clause. That would make the bill take effect 90 days after it is signed, rather than immediately, giving license holders time to comply with the new standards or figure out another option.

Washington has long offered wholesale vehicle dealer licenses. Typically, about 50 are in use each year. After Indiana halted its dealer license program a couple years ago due to worry about licensees acting unscrupulously, demand for those issued by Washington skyrocketed.

Now the Washington Department of Licensing finds itself in a similar position as Indiana.

There’s concern the licenses are being used “to do business both illegal and questionable nationwide that is driving a number of complaints from law enforcement and consumers,” said Tony Sermonti, the agency’s policy and legislative director.

The department has received several complaints from out-of-state law enforcement and the FBI stating that Washington dealer plates — an item wholesale dealers can purchase — are being used on vehicles involved in criminal activity, Sermonti said.

“This issue really gives Washington state dealers doing legitimate business in our state a black eye all across the nation,” Sermonti said. “It’s very difficult if not legally impossible for the Department of Licensing to take enforcement action on deals occurring in other states.”

Malher and Kiglies said the state never presented them with evidence that any of their license holders broke the law.

“There is no way for us to correct negative behavior because we were never found to do anything wrong,” Malher said.

The bill in front of Inslee doesn’t eliminate the wholesale auto dealer license but aims to eliminate the business model of warehousing dealer licensees in single locations, as happened at the offices along Evergreen Way.

It says a licensed dealer can be co-located with no more than two other licensees and requires licensees to do most of their business with Washington-based businesses.

Within 10 days of the law taking effect, the Department of Licensing will notify all current licensees of the new rules — and that they are out of compliance. They’ll be given time to comply after which the state can move to cancel or revoke licenses.

About 80 people are in the midst of applying for a wholesale dealer license, Sermonti said. Processing of those applications has been halted pending the outcome of the bill. Refunds will be granted to those who choose to withdraw, he said.

“It’s a shame,” Malher said. “There didn’t seem to be any evidence of wrongdoing. We thought we were a positive addition to the local business community.”

Herald writer Noah Haglund contributed to this report.

Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com