Logo

IBA Conversion - Is a Change in Order?

Converting an in-bay automatic car wash system into a higher volume mini-tunnel is said to be easy, affordable, and profitable.

By Robert Roman

11/01/19

Converting an in-bay automatic car wash system into a higher volume mini-tunnel is said to be easy, affordable, and profitable.

Attributes and benefits of an in-bay conversion are said to be a tri-fold increase in hourly capacity, greater average sales, lower costs of goods, and competitive advantage.

Today, there are several options for operators to choose from including 34’, 35’, 38’, and 43’ conveyor.

Key components include the core equipment, support equipment, and add-ons.

Core equipment usually consists of front-wheel-pull conveyor, solution applicators, five-brush wash module, wax/rinse arch, and 45-hp dryer.

Add-ons step this up to a seven-brush wash module, high-pressure wheel washer, wax, sealer, tire shine, and 60-hp dryer. It’s theseadd-ons that are necessary for greater average sales.

Typical cost for core equipment, support equipment, and add-ons is between $150,000 and $250,000 — $300,000 or more with a belt conveyor. These prices do not include expense for pay stations, water pre-treatment, vacuums, signage, installation, freight, or sales tax.

Consequently, most conversion projects represent a major financial decision that merits rigorous financial analysis. For example, the promise of a substantial increase in hourly capacity requires market potential.

To illustrate, a typical in-bay can wash about 10 to 12 cars an hour, has a range of between 12,000 and 20,000 washes per year, and most operators compete against two or three locations. Consequently, there should be a realistic assessment of where the additional 20,000 or more cars are going to come from.

Another key element of analysis is revenues. According to the most recent operator surveys, in-bays have average per-car revenue of $9, and gross sales revenue is between $120,000 and $170,000.

In-bays have a unit variable cost of $2, and total operating expenses is about 40 percent of gross sales revenue. Net operating income has a range of between $72,000 and $102,000. Consequently, we might expect a conversion project to have sales revenue in the range of between $300,000 and $400,000 and a commensurate increase in profits.

Besides greater sales activity, operators also need to consider increases in certain operating expenses such as credit card fees, advertising, insurance, and labor burden. There will also be additional requirements for administrative oversight (i.e., management) and promotion (i.e., subscription program).

Operational efficiency is also important. For example, an in-bay conversion promises the ability to compete with upsurge in express tunnels in a market, but operators should be mindful that those tunnels can produce three times the hourly volume of a mini-tunnel.

Moreover, a conveyor imposes certain constraints such as limited business hours and attendants that are needed for operation whereas an in bay is capable of being open 24/7 and attendants are not required for operation.

One measure of operational efficiency is productivity. Productivity of systems can be calculated and compared to other systems by dividing throughput (selling price minus cost of goods) and operating expense.

The final aspect of analysis is capital efficiency. Conversion projects should demonstrate the ability to produce quality profits consistently, generate sufficient cash flow, and provide adequate return on invested capital for the risk taken.

How can operators determine if an in-bay conversion is right for them? The first step is to look at the last three years of financial performance. If sales have been declining consistently or the industry is growing faster than your business, change is probably in order.

Likewise, if new car wash construction in the region has been mostly express exterior, it may be time to adapt.

If change is in order, operators will also need to have their books in order to demonstrate they can meet certain financial benchmarks that lenders require.

 

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.



testAll content copyright © 2019 EW Williams Publications Company. All rights reserved. No reproduction, transmission or display is permitted without the written permissions of the publisher.