Trends — Consequences
for the Car Wash Industry
By Robert Roman

A state of the industry report is a tool designed to provide participants with an idea of the complexity of an industry and the factors that influence the way an industry develops. Normally, these reports discuss information related to buyer and supplier power, threats, barriers to entry, and the degree of rivalry that exists between firms.

An industry can also be affected by trends, both short and long-term.

A trend is the tendency or inclination of something to change. Analyzing and predicting trends is a tricky business because trends can be short or long-lived or they may never materialize (like forecasting the weather). Nevertheless, experience has shown that trends are important because they can influence the way firms conduct business.

With this in mind, we are providing a look at some factors where trends could have favorable or unfavorable consequences for the car wash industry.

AUTOMOTIVE

Pundits have long thought that growth in the car wash industry is partially driven by average annual increases in the car fleet. In 2009, U.S. consumers bought 21 percent fewer vehicles than the year before.

Not only were sales volumes down, consumer preferences for mini-vans/SUVs and large vehicles dropped by nearly 12 percent and 10 percent, respectively. The preference for smaller fuel-efficient vehicles rose by over 20 percent.

According to Autodata Corp., 45 percent of the country’s most popular models in 2009 were smaller cars. Sales of “lower” small cars (econobox sedans with prices starting at $10,000) increased by over 27 percent last year. Small cars as a percentage of the U.S. fleet were 15 percent in 2007, 18 percent in 2009 and are expected to grow to over 22 percent by 2015.

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Automobile leasing continues to rise. In 1990, leasing accounted for 13.5 percent of new-vehicle financial transactions at the retail level. This figure reached 31.5 percent in 1995 and 35 percent in 2008. According to some predictions, leasing could rise to as much as 60 percent of the market in the future.

It is often thought that people who lease don’t wash their vehicles as regularly as those who buy. However, leases are designed on the assumption that a vehicle will have a certain predicted resale value at lease-end. Considering the average price of a new vehicle is almost $29,000, it appears that motorists will have the incentive to maintain their leased vehicles to avoid paying for the extra value depreciation.

POPULATION

Population trends are important to car wash equipment manufacturers and operators because new development tends to gravitate towards growth.

In the mid to late 90s, the six fastest growing states included Nevada (4.5 percent), Arizona (4.4 percent), Idaho (3.1 percent), North Carolina (2.5 percent), Georgia (2.3 percent), and Texas (2.0 percent).

Today, the five fastest are Wyoming (2.1 percent), Utah (2.1 percent), Texas (1.9 percent), Colorado (1.8 percent), and Alaska (1.5 percent). Some states which have traditionally maintained the top spots during good economic times have virtually come to a standstill.

Arizona for example used to grow by 60,000 to 100,000 people annually. However, in the metro Phoenix area, which contains 80 percent of the state’s people, the population has remained basically flat since 2007, primarily due to a loss of jobs.

EMPLOYMENT

Finding full-time work will continue to be a challenge for many people as companies continue to downsize and outsource jobs. For example, IBM is often viewed as an American company but 71 percent of its workforce is now located outside the United States.

Since the recession began, the number of Americans working part-time because full-time is unavailable has doubled to 9.2 million (BusinessWeek). According to a survey conducted by Kelly Service Inc., the number of self-employed “free agents” in the United States has risen to 25 percent of the total working population; it was only 19 percent two years ago.

According to the Census, more than 10 million Americans are now self-employed, up from 8 million in 1980. The number of “non-employer firms,” businesses with no payroll, recently topped 20 million — up from 15 million in the late 1990s.

As the ranks of accidental entre-preneurs and permanent temps grow, there will be more people working from their homes and working evenings and weekends instead of commuting daily to their 9-5 jobs. This may have consequences for car wash operators in how and when these people will care for their vehicles.

CULTURE

Our culture continues to change. Since April 2000, the Census Bureau estimated that the Latino population grew by 10.2 million to 45.5 million or an increase of 29 percent.

According to a recent Census projections report, about 60 percent of future total U.S. growth will come from the Latino population, almost 100 million additional people. Eventually, one in four Americans would be Latino. The report foresees the Latino population in the United States rising from 15 percent today to 30 percent by 2050.

According to Pew Hispanic Center, the states with the fastest growing Latino populations today are Virginia, Georgia, Florida, and North Carolina. The average growth rate in the migration areas is over 41 percent.

Latinos are employed mostly in retail trade, education, food services, construction, manufacturing, and business services. Fifty percent are married and 50 percent of Latinos own their homes. The median household income for native-born Latinos is $45,800 and $38,700 for foreign born.

The implication for car wash operators from cultural change is obvious; Latinos own a lot of cars and trucks.

CONSUMERS

Consumers are increasingly shopping for things that will stretch their dollars. Causes for this include high unemployment, depressed property values and high foreclosure rates, volatility in the stock market, and higher consumer prices.

Consequently, it is no surprise that consumers have become better shoppers. According to Nielsen Media and Braun Research, people are putting a lot more thought into what they buy. Looking at the long-term, the research found that 60 percent of consumers expect they will continue shopping for the best deals when the recession ends. Becoming better shoppers is also having an effect on how people choose to make purchases.

People who use advertisements for price information and then clip coupons are 25 percent less likely to make an unplanned purchase. Households led by seniors and those with larger families do 30 percent to 65 percent less spontaneous purchasing. People who make shopping lists are far less likely to make impulse buys — 82 percent less than the average. On the other hand, young, unmarried adults with higher incomes do 45 percent more unplanned purchases.

These trends may have consequences for car wash operators many of which view their wash as purely a drive-by business where the vast majority of customers make a spur of the moment decision to stop and take advantage of their service.

FINANCE

Obtaining financing for new car wash development will continue to be a challenge for people new to the industry.

Not all banks have stopped making car wash loans but those that are lending money have really tightened things up. Instead of obtaining a loan with a seven- or eight-year balloon and 25-year amortization, a new investor may only qualify for a three- to five-year balloon and a 15-year amortization.

Lenders are also requiring borrowers to have more skin in the game. In some cases, the equity requirement or down payment has gone up from 18 percent to 22 percent to 30 percent to 40 percent of the total project cost.

Lenders have also tightened the screws by placing a lot more emphasis on market and management feasibility. Banks also want to see solid business plans, not unrealistic pro forma. This means new investors will need to demonstrate the market is strong enough to support an additional car wash outlet and that the investor has the necessary qualifications to operate the business.

SUPPLY CHAIN

Consolidation, buyouts, mergers, and closures are common to most mature industries. We have seen this with Jim Coleman’s acquisition of Hanna. In 2006, Mark VII was acquired by Wash Tec AG, Germany. A year ago, Agile Pursuits Franchising Inc. acquired family-owned and operated Carnett’s car wash chain. In July 2009, Paul Fazio, president of Sonny’s Enterprises, purchased Compuwash stock and assumed ownership of the company. More recently, Superior Car Wash Systems Inc. has stopped taking phone calls.

With continued softness in the conveyor, in-bay, and self-service segments and more competition in manufacturing (overseas and domestic), we will probably see more change in the supply chain in the coming years.

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