[CraigFL]

First, a story about a dealer that deals exclusivly with Ferraris. He let a prospective owner drive the car(with him in the passenger seat). On a freeway ramp the driver came in a little hot and looped the car crashing it into the barrier-- $10K worth of damage. Lucky, the dealer had insurance that covered the repair. But not so lucky, the car really wouldn't be the same again--future buyers would know it was in an accident and because of that it lost value.
Probably the dealer could have tried to sue the driver but since he was in the car with him, and therefore had SOME control, it would be doubtful if the dealer would win(besides making an enemy).

How does a dealer(or anyone selling a car for that matter) know when they have a real buyer for their car. When I've sold cars, I'm very careful about who gets to drive it because of the insurance issue. Some states, the owner is always responsible. Some states the driver is responsible with their insurance(if they have any! or have any that will cover the new vehicle!) It would not be unreasonable for someone to ask for a deposit like that -after all it's their property and they can do anything like that they want. It may scare away a few real buyers but it will certainly scare away all the tire kickers.

If you truly want to pursue this vehicle, you will continue to talk to this person and work out details as to how you can get it inspected. I'm sure as you show them how interested you really are, they will loosen up on the rules they made....