Threats on the horizon: any opinions?

[Mark50]

I'm considering making an offer on a tunnel with an IBA but before I do and before asking any questions regarding financials, price or equipment, I'd like any opinions on what operators see as true threats to this industry, if any. Since I'll be on the hook for a 20-25 year loan, I'm thinking long term here. I need this industry to be viable for the 10 years or so that I expect to own plus another 10 or 20 years of viability for the person I'll need to sell to. Basically, I don't want to be caught flat-footed like the guy in 1980 who buys a Smith Carona typewriter franchise or maybe an arcade store. That may sound extreme but remember, there is a long payback period to this business with lots of potential technological changes. I would feel a little better if the RE wasn't single purpose and I could at least recoup that portion of the cost in the event the wash is no longer viable but, as you know, the building is probably a tear-down, the FF&E is junk and the goodwill is zip.

The existential threats that come to mind are:

• driverless/autonomous vehicles that may not even be owned individually but instead part of a shared fleet. All major auto companies, plus various start ups plus our tech overlords are all working on this - at least according to the news articles.
• new technologies often described as nanotechnology that make car washes unnecessary or at least much less frequent such as do-it-yourself or professionally applied coatings or in new car paints. I know both are already here to one extent or another. Question is are they just the beginning….
• major regulatory/environmental mandates slamming car wash operators with costly burdens involving water reclaim among others.
• something I'm not thinking of

I'm sure I'll get a lot "Get real!" reactions but change starts slow and then it goes real fast. Remember those phone booths, music cassettes, pagers, beepers, fax machines, landlines, manned answering services, analog, yellow pages, vhs, poloroids, walkmans, etc, etc., Some of these came and went not just in our lifetime but a fraction of our lifetime. Some companies were fortunate to transition from the old product to the new but others went the way of the dinosaur.

Human nature being what it is, I think anyone reading this -with their livelihood at stake - will dismiss it (and that may be correct) so I'll ask the question a different way. Have you given any thought to these issues and what you think the impact will be. For operators with many years until you plan to sell, are there any issues that keep you up at night that you see threatening your retirement nest egg?

I know no one has a crystal ball but what does your "gut" tell you if you were about to sign on the dotted line for $1m loan with a big down payment and a long payback period. Would you do it? Would you recommend your children stake their future on this industry?

 

[Axxlrod]

Well, let's see...

Autonomous vehicles will still get dirty.
Mercedes tried a "nanopaint" tech several years ago that wasn't supposed to get dirty. It did.
New car washes are required by the overlords to install water recycle systems already.

What does my gut tell me? Well, I'm in the beginning stages of building a new wash, and I'll be signing for a $3M loan. So what does that tell you?

I hope my son wants to follow me into this industry. I followed my father into it. Just as my cousin followed his father into this biz also.

That aside.

This industry can be daunting for a newb. Much more hands on than outsiders think it is. Especially tunnels.

Caveat emptor.

 

[mjwalsh]

I think anything that makes a specific car wash less affordable will eventually take its toll ... on total number of vehicles washed & how often. Personal debt statistics have been growing higher around the USA. At some point larger numbers of people will start finally budgeting more & washing less frequently.

We still have a large number of homeowners who wash their vehicles in their driveways during the above freezing temperature months. I do not know the environmental impact in our community from that ... I do know that it is against the law in some communities.

 

[Kramerwv]

I think that the fact you’re worried about these things is good because you’re not just going in with blinders on thinking you are going to kill it (hope you do). I would be hesitant to finance a wash for 20 years unless you are in an area with growing demographics and land values. If it doesn’t cash flow, with funds for replacement reserve and a return to you as the owner, on a 15 year basis then either keep looking or be a really good mechanic in order to save substantially on maintenance and upkeep. Not saying any of those outside factors won’t come true, but if they do I want a quicker repay (equity build or return of cash to owner) than 20 years.

 

[Mark50]

Thank you for the responses. I think autonomous vehicles may be far enough out - if ever - to be a concern for me. The coatings? Who knows? And we don't know what we don't know, right? This topic reminds me of a taxi cab company I briefly looked at about 15 years ago, it had strong numbers, had been around for decades. I passed on it as it wasn't what I was looking for. An "experienced expert with lots of expertise" bought it (a larger cab company from a neighboring bigger city). Well, the company is long gone. Some of you will surely know what happened. I sure didn't see it coming and clearly neither did the experienced expert with all of his expertise.

Michael, I agree with what you're saying although hopefully what you describe will be part of the normal economic cycle that a decent wash can withstand. I expect to have some of those ups and downs.

Kramer, I agree too that a 15 year payoff is best and would mitigate any of these potential industry killers. The deal I'm looking at would cash flow at 15 but I might take the 20 year term just as protection (paying it off on the 15 year amortization).

 

[Waxman]

Thank you for the responses. I think autonomous vehicles may be far enough out - if ever - to be a concern for me. The coatings? Who knows? And we don't know what we don't know, right? This topic reminds me of a taxi cab company I briefly looked at about 15 years ago, it had strong numbers, had been around for decades. I passed on it as it wasn't what I was looking for. An "experienced expert with lots of expertise" bought it (a larger cab company from a neighboring bigger city). Well, the company is long gone. Some of you will surely know what happened. I sure didn't see it coming and clearly neither did the experienced expert with all of his expertise.

Michael, I agree with what you're saying although hopefully what you describe will be part of the normal economic cycle that a decent wash can withstand. I expect to have some of those ups and downs.

Kramer, I agree too that a 15 year payoff is best and would mitigate any of these potential industry killers. The deal I'm looking at would cash flow at 15 but I might take the 20 year term just as protection (paying it off on the 15 year amortization).

there is still going to be a need for car washes. The important factors are location, competition, fixed costs and how well you run / operate the business.

 

[I.B. Washincars]

I think the biggest threat is the industry itself. Express washes are all the rage now and are being built at a fever pitch. They are getting built closer and closer together and in smaller markets. They have been cutthroat on price forever (2-5 dollars for single wash) and now they are approaching a two wash price for monthly memberships. I think it's going to come crashing down sooner, rather than later. Take my opinion for what you paid for it. I have no express experience, but I've spent five decades in the SS/IBA arena and sold out two weeks ago.

 

[Greg Pack]

Yeah, the express market is IMO overheated and continues to boom and draws the vast majority of new investors.

Another threat I perceive is the attitude of millennials towards their car. Most are much more worried about their phone than their car. As this generation ages car washing could become more of a maintenance thing, not a pride thing like it was for Gen X and Boomers.

Having said that, the right location at the right price still makes sense and can be very profitable.

 

[mjwalsh]

I agree with Greg about the millennials tending to obsessed with their phones & also allowing themselves to be lulled into the mushroom cloud of apps within the phones! Forgive me for the slight paraphrasing?

Like some of the lightning fast gunslingers in USA history, when the "west" was still wild ... some of the lightning fast phone carrying individuals can also do a lot of damage a lot quicker. As always ... IMHO.

This probably a dumb question, but a percentage of the gas stations here in our area do not have tunnels but they appear to be sometimes less than 35 feet in length. Would they be classified as "EXPRESS" or "IBA"???

 

[scrubs3]

Not sure if it will become a threat, but in Houston, Nissan is rolling out Nissan Switch. You pay $699/month and can drive most any Nissan car up to 2000 miles per month. Don't want the SUV, use the app and have them drop off a sports car, need a pickup, have them drop off the pickup. This can be done daily. Give 3 hours notice, but they prefer about 48 hours. So now the car industry is going into the membership business. They maintain the car and you get a clean car each time. Dealerships I am sure are going to use their own facility to clean the vehicles. Houston is the test market for Nissan. Something to think about for the future.

 

[Kramerwv]

I read somewhere that the long term goal for ride sharing services is to park autonomous fleets in large parking lots and they drive to you, pick up and then return to the lot when finished. Probably 20 years out and a better fit for urban areas but these things will have have an effect on car washes and other auto related businesses eventually

 

[Roz]

I think the biggest threat is the industry itself. Express washes are all the rage now and are being built at a fever pitch. They are getting built closer and closer together and in smaller markets. They have been cutthroat on price forever (2-5 dollars for single wash) and now they are approaching a two wash price for monthly memberships. I think it's going to come crashing down sooner, rather than later. Take my opinion for what you paid for it. I have no express experience, but I've spent five decades in the SS/IBA arena and sold out two weeks ago.

There is a tunnel in VA where the single wash price is $21 and the monthly membership price for that package is $20. The place has lines on both lanes most of the time. SS/IBA in good locations are being converted to Dunkin Donut drive-thru shops.

 

[mjwalsh]

For the sake of better understanding for some of us more self service oriented: "What are the differences between an IBA & an Express?"

 

[MEP001]

IBA = in bay automatic, express or EE (express exterior) = particular operation of a tunnel, tunnel = car wash where your car moves through stationary equipment. None has anything to do with length, a tunnel can be anywhere from 35 to a typical 120 feet (or 255 feet for the world's longest), IBA's are whatever the manufacturer makes them.

 

[mjwalsh]

IBA = in bay automatic, express or EE (express exterior) = particular operation of a tunnel, tunnel = car wash where your car moves through stationary equipment. None has anything to do with length, a tunnel can be anywhere from 35 to a typical 120 feet (or 255 feet for the world's longest), IBA's are whatever the manufacturer makes them.

Do they all have a motorized track to transport the customer's vehicle from start to finish of the wash??? If not, I wonder if it makes a difference to the end customer?

 

[MEP001]

There are tunnels where the customer drives through slowly with lights to help time their movement. But as a rule, a "tunnel" is where the car moves through stationary equipment. Other than the dryer, an IBA has the car stationary while the machine moves around it.

 

[mjwalsh]

Back to the "on the future horizon opinion subject of the this thread:

I just received some information that some of the large volume of local gas station washes are taking out their motorized tracks that move the vehicle while in neutral because of too much maintenance required for the car wash's motorized tracks.

Am I wrong to think that that might turn out to make self service part of our industry more attractive ... because the "necessary to drive forward" ones are "a bit less user friendly" than ... the "just leave car in neutral" washes.

 

[Kramerwv]

That’s likely a labor issue, not enough to man the tunnel and nobody skilled enough to work on it.