Fueled by private equity and a subscription-based business model, the auto wash industry is flooding the US with new outlets. Some towns and cities have had enough.
By Patrick Sisson
February 21, 2024 at 5:00 AM PST
This car wash in Fort Myers, Florida, is one of about 60,000 places to get your vehicle cleaned in the US — and many more options are on their way. Photographer: Jeff Greenberg/Universal Images Group Editorial
The town of Streetsboro, Ohio, just off the state’s famous turnpike, owes a not insignificant part of its identity to automobiles and the industries that support them. About 6.5 million cars drive by every year, and the local retail mix is dominated by motels, gas stations and various drive-through businesses.
But in recent years, Mayor Glenn Broska has heard from a lot of constituents angry about one particular element of the autocentric landscape: car washes.
There are four full-service car washes in town, with a fifth on the way; three are bunched up on a mile-and-a-half stretch of Route 14. Social media complaints about car wash overkill spurred town leaders to take action. Early last year, Streetsboro ended up enacting a moratorium on new car wash businesses.
“A car wash does not provide a lot of jobs for the community, and they take up a lot of space,” Broska said. “If you want to invest your dollars into a car wash, then God bless you. But at the same time, I’m responsible for 17,500 people and have to be cognizant of their wishes.”
Other such “saturation bans” have emerged in nearby northeast Ohio cities such as Stow and Parma, Cleveland Scene reports. In Buffalo, New York, a surge of suburban car wash openings in 2023 triggered opposition from nearby residents and community members — including the owners of an existing car wash nearby. New Jersey, Louisiana and Alaska are also seeing their own car wash booms as national chains like Mister Car Wash and Zips Car Wash expand.
Last fall, the planning commission in Lebanon, Tennessee, rejected a permit to build a new Mister Car Wash location, arguing that the largely automated facility wasn’t the best use for a prominent Main Street site. In response, the company is suing.
The omnipresence of the car wash in American life may be underappreciated: There are twice as many car wash outlets as McDonald’s and Starbucks locations combined. Photographer: Ernst Haas/Ernst Haas
In a country with roughly 280 million private cars and trucks, can there be such a thing as too many car washes? A growing number of city leaders seem to think so. Unlike stores, restaurants or other businesses, most self-service car washes don’t pay sales taxes to their host communities. And they don’t bring much else to the table in terms of local benefits, critics argue; like drive-through-only fast-food outlets (which have also been the target of local bans), the latest generation of automated facilities provide few jobs even as they pump out noise, traffic congestion and vehicle emissions.
But where neighbors might see a too-crowded market, investors see the beginning of a boom. From the Snow Belt to the Sunbelt, companies are scrambling to add locations and grab a piece of a $14 billion-plus industry. With 60,000 locations across the US, the sector has been expanding at roughly 5% annually, with some forecasts predicting the market to double by 2030. More car washes were built in the last decade than all the preceding years combined.
“I don’t want to be too bullish and say there’s no way this could fail,” said Jeffrey Cicurel, director of capital markets at real estate brokerage JLL. “But Americans are moving to the suburbs, and Americans want quality retail, and car washes come with that.”
A Boom Is Born
The car wash boom reflects a broader shift away from do-it-yourself car care habits. Like changing your own oil, soaping up the family auto in the driveway has increasingly become an artifact of decades past: The number of washes done at professional facilities jumped from 50% in 1996 to 79% in 2021, according to the International Car Wash Association.
“We think this is the coffee market in the early ’90s, when Starbucks got going,” said Ian Rickwood, CEO and founder of Henley Investment Management, an international investment and fund management firm that has its eyes set on US car washes. “One came to town, and people said, ‘$5 for a coffee, surely nobody will buy more than one cup a day.’ And of course, another one opened and another one opened and the category expanded because people began to change their habits.”
And while Covid-19 radically disrupted driving patterns, it failed to stop Americans from washing their cars, Cicurel said. “Car washes have ridden that momentum for the past four years. Retail fundamentals are stronger than they have ever been.”
A neon sign advertises Elephant Car Wash in Seattle, Washington, which opened in 1956. Photographer: Kevin Schafer/Moment Mobile ED
Roughly 50 investment groups nationwide have been buying or building sites, seeking to consolidate independent locations or build out their own brands, said Eric Wulf, CEO of the International Car Wash Association. More than $750 million was invested in three expansion plans just last fall. The myriad financial challenges of 2023, including rising interest rates, led to a slowdown in merger and acquisition activity, but the hurdles aren’t structural, said Wulf: This is just a pause in the cycle. Backers still radiate optimism over a scalable industry that can see revenues average $1.5 million a location.
“I can’t think of another category, particularly of retail, that has been on the tear of development like car washing has over the last five to 10 years,” said Wulf. “Sure, there’s a risk of overbuilding and saturation in some places, but I think the demand has simply surprised towns and cities.”
The Rise of ‘Automobile Laundries’
The superabundance of the American car wash speaks both to the century-long dominance of private automobiles and their enduring role as emblems of affluence that need to be kept clean.
Not long after the first horseless carriages arrived, entrepreneurs began launching businesses to scrub off the dust and mud of that era’s unpaved roads. The first patent for a car wash, the Hanley Vehicle-Washer, was filed in 1900; “auto laundries” and “auto wash bowls” appeared in US cities soon thereafter.
A Chicago car wash in 1925. The growth of private automobile ownership fueled the corresponding development of car wash technology. Photographer: Bettmann via Getty Images
The industry entered its mechanized era with the arrival of the Minit-Man Automatic Car Washer in 1946 — a Rube-Goldberg-like collection of chain conveyors, brushes, vacuums and blowers that could scrub 750 cars a day with a “Niagara torrent of water,” as a 1947 issue of LIFE proclaimed.
In the 1960s and ’70s most car washes were mom-and-pop businesses, and the industry was known for eccentric owners and unintentionally hilarious low-budget TV spots (not to mention the 1976 film and accompanying disco hit). Some locations —especially those with playful signage like the showering pink elephant that announced Seattle’s Elephant Car Wash chain, or the Googie-style architecture of numerous Southern California car washes — have been the subjects of historic preservation efforts.
In recent years, car wash evolution has mirrored trends in technology and business practices, namely the replacement of human workers with machines. A chain called Benny’s in Baton Rouge, Louisiana, is credited with pioneering the “express exterior” model, with automated payment kiosks. These mostly unmanned tunnels now make up a bulk of the industry’s revenues, said Wulf, since they allow owners to slash labor and maintenance costs and obtain bulk savings on chemicals and other supplies. Even the industry that manufactures the technology and machines used at these locations has consolidated and vertically integrated, with Dover and National Car Wash Solutions dominating the market.
Water use has also declined as technology has improved: According to Rickwood, current technology uses about 50 gallons a wash, 80% of which is recycled. Going DIY with a hose and a bucket typically requires 150 gallons.
Cleaning Up With Subscriptions
But the industry’s biggest recent innovation involves its business model, which has increasingly focused on membership and recurring revenue.
Mister Car Wash, a chain picked up by private equity firm Leonard Green & Partners that has gone public and now has more than 400 US locations, was an early developer of subscription offerings. Users pay a monthly fee for unlimited washes, with plans starting around $20 a month before adding services like waxes and wheel polishes. (A basic a-la-carte wash runs for about $10 each.)
In analyzing usage patterns, the industry soon found that the convenience of wash memberships translated to higher profits. A typical non-member may come in three or four times a year, while a typical member gets that many washes each month. But at $20 a month, that’s a huge jump in annual spending — more than enough to cover the costs of accommodating heavy users who may scrub their SUVs dozens of times a month.
“They eat their lunch via subscriptions,” said JLL’s Cicurel of car wash operators.
A Houston Mister Car Wash location in 2000. The company was a pioneer in building the subscription model. Photo by Karen Warren/Houston Chronicle via Getty Images
Thirty or 40 years ago, the business model was more manual and mercurial. A large location might require a staff of up to 50 workers to handle all the steps in a longer and more labor-intensive wash-and-dry process. and operators were vulnerable to the vagaries of weather: A single rainy weekend, when the bulk of washes took place, could really hurt profits
.
Now, washes can take just 90 seconds, labor costs have been automated down, and recurring revenue from memberships has eliminated weather risks. Plus, the tax reforms enacted in 2017 by former president Donald Trump allowed car wash owners to claim 100% depreciation on new equipment — a generous subsidy to further investment. While that incentive was written to shrink over time, the tax proposal currently in Congress would restore the 100% depreciation allowance.
Little wonder that private equity has turned towards car washes with the zeal of a midcentury cartoon wolf sizing up a femme fatale.
“If private equity thinks it’s sexy, they’re gonna throw money at it, right?” said Emil Khodorkovsky, founder and CEO of Forbix, a real estate firm that just acquired a car wash in Santa Monica, California. “It’s a basic business. It isn’t complicated finance. Certain actors are getting squeezed but this one still has a much higher-yielding return than an apartment building or a retail center.”
What other industry can offer locations with up to 80% subscription-based revenue and an earnings before interest, taxes, depreciation and amortization margin of 50%? Amazon can’t ship a car wash, Rickwood said. And the growth potential is massive. About 15% of the current car wash market is membership-based, he estimates; when customers go from non-members to members, that results in 13 times more consumption and 10% more revenue. If just 10% of the total market shifted into the membership category, that would boost the total number of washes in the US from 2 billion to 3 billion a year.
“It’s a ubiquitous category, whether you’re wealthy or lower income, you still use car wash,” he added. “If you’re lower income, you often take more pride in your car because it’s probably the most expensive possession that you’ve got and you want to preserve value in it. So it’s not purely discretionary.”
A driver exits a car wash in San Bruno, California, in 2020. Photo By Paul Chinn/The San Francisco Chronicle via Getty Images
Rickwood sees opportunity in establishing the firm’s AquaSonic car wash brand in the US, starting with central Florida. The firm used algorithms to place their first pair of Tampa-area locations; their long-term plan calls for opening 100 washes by 2028.
To meet demand, megawashes have popped up, such as the Flagship Carwash One Loudoun in Ashburn, Virginia — a sprawling 65,000-square-foot complex that could fit a football field inside. Such “destination” facilities can offer indoor play places for kids, electric vehicle charging and other services.
Far From Washed Up
The industry’s growing footprint has not gone unnoticed. Complaints have erupted about traffic tie-ups, noise and chemical odors around locations, among other issues.
City leaders have a limited number of car wash countermeasures at their disposal, such as withholding special use permits and enacting zoning changes to limit new locations. But it’s hard to argue about consumer preference. “The average person may ask, ‘Why do I need more car washes?’” said Wulf. “The simple answer staring right at them is because there’s enough demand for them. There are so many more people who want their car washed.”
Still, some experts are now warning investors to steer clear of the sector, and locations in overcrowded markets have shuttered. “It will be a survival of the fittest in some trade areas, where there are some car washes that are gonna say with five of us in this small 3-mile radius, there's just not enough meat on the bone for everyone to eat,” said Michael Corey, chief development officer at Zips Car Wash.
But growth forecasts paint a rosy picture over the long term, and industry backers see room for more expansion: Most consumers travel just 3 miles to get a car wash. “Statistics have proven that while more car washes are being built, more people are also washing their cars,” Thomas Coffman, a partner with Miracle Car Wash Advisors, told Car Wash magazine.
Then there’s the international potential: Wulf sees opportunities in German, Dutch, Canadian and Australian markets; Rickwood has heard of expansions in Saudi Arabia. As private vehicle ownership expands globally, car washes are sure to follow close behind.
That leaves people like Streetsboro’s Mayor Broska as members of a dwindling minority: He still washes his car with a bucket of soapy water in his driveway.
“This is America; people are going to make money,” he said. “And they figured out how to make money with a car wash.”
Article from Bloomberg