The car wash industry in the United States is experiencing rapid growth, evolving from mom-and-pop businesses to highly automated franchises and chains. This change began in the sixties and seventies but has accelerated with the development of express exterior setups that greatly reduced labor and operational costs. Especially notable are places like Streetsboro, Ohio, which have witnessed a boom due to this model, supported by private equity investments and favorable tax regulations introduced in 2017 during the Trump administration.

Private equity investments have surged in the car wash industry due to its potential for high returns. The membership model, which offers customers recurring services for a fixed fee, has become a significant factor in driving profits. The industry is resilient even amidst economic uncertainties and has been growing steadily, pulling in more investors who aim to convert a larger percentage of vehicle owners to the membership model. This has encouraged expansion across the country, with states like New Jersey, Florida, and California seeing substantial increases in car wash locations.

Main takeaways from the video:

Please remember to turn on the CC button to view the subtitles.

Key Vocabularies and Common Phrases:

1. saturation bans [ˌsæʧəˈreɪʃən bænz] - (n.) - Restrictions imposed by municipalities to prevent over-concentration of businesses like car washes. - Synonyms: (restrictions, limitations, curbs)

And now some municipalities are imposing saturation bans to keep them out, leading us to ask, why are there so many car washes?

2. automated payments [ɔːˈtɑːmeɪtɪd ˈpeɪmənts] - (n.) - Electronic method of processing transactions without human assistance. - Synonyms: (electronic transactions, digital payments, self-service payments)

This so-called express exterior setup where you'd have automated payments, a smaller footprint where a machine would do all the work.

3. franchises [ˈfrænˌʧaɪzɪz] - (n.) - A type of business network that is distributed under a common brand and operating model. - Synonyms: (chains, branches, networks)

This really helped usher in an era of lower costs, which made it easier for franchises and chains to expand.

4. recurring memberships [rɪˈkɜːrɪŋ ˈmɛmbərʃɪps] - (n.) - A subscription model where services are available continuously. - Synonyms: (subscription, repeat membership, renewal service)

The way that so much of the economy has geared towards services that people like, having these sort of recurring memberships.

5. depreciation [dɪˌpriːʃiˈeɪʃən] - (n.) - A reduction in the value of an asset over time. - Synonyms: (devaluation, amortization, reduction)

But because it applied to car washes and the depreciation and the investment in new equipment, it gave investors much more incentive to add new locations and expand.

6. incentive [ɪnˈsɛntɪv] - (n.) - Something that motivates or encourages someone to do something. - Synonyms: (motivation, inducement, encouragement)

it gave investors much more incentive to add new locations and expand.

7. catalyst [ˈkætəˌlɪst] - (n.) - An agent that provokes or speeds significant change or action. - Synonyms: (stimulus, spur, impetus)

On that front, another big catalyst for growth in the car wash industry was 2017.

8. moratorium [ˌmɔːrəˈtɔːriəm] - (n.) - A temporary prohibition or suspension of an activity. - Synonyms: (suspension, halt, ban)

We started off with a moratorium on the acceptance of plans for car washes in that one year period.

9. distressed properties [dɪˈstrɛst ˈprɑːpərtiz] - (n.) - Real estate that is under financial strain or in poor condition. - Synonyms: (abandoned, decrepit, run-down)

On another front, we generally take over blighted distressed properties.

10. blighted [ˈblaɪtɪd] - (adj.) - Referring to an area in poor condition or neglected state. - Synonyms: (deteriorated, decayed, damaged)

On another front, we generally take over blighted distressed properties.

Uncovering The Rise In Car Wash Proliferation

Car washes are taking over the US. With 60,000 locations across the country, it's a $14 billion industry that's growing fast. And now some municipalities are imposing saturation bans to keep them out, leading us to ask, why are there so many car washes?

To get a sense, when the car wash industry started shifting, we have to go back to the sixties and seventies. At that time, the industry was really filled with a lot of mom and pop owners. A lot of sort of colorful local commercials might recall the 1976 film and disco hit car wash at the car wash. But at that time, the industry was in a more sort of basic setup. Labor was a really big expense for owners. You might have dozens of people working at a car wash. Something as simple as like a rainy weekend when most people would wash their cars at the time could literally wash away the profits.

This started to change in recent decades. One of the big shifts was a move toward more automated car wash locations. This so called express exterior setup where you'd have automated payments, a smaller footprint where a machine would do all the work. This really helped usher in an era of lower costs, which made it easier for franchises and chains to expand.

This explosion is especially evident in the town of Streetsboro, Ohio, a small suburb located just outside of Cleveland. About 6.5 million cars go through the city every year, making it an obvious attraction for the industry's investors. The biggest car wash is clean. And sergeant clean are right on the main corridor. And then we have another car wash that is on the east end of town, which is a 24 hours drive through car wash. And then we also have a car wash up at the intersection of 43 and frost. And then we're currently building our fifth car wash and that will be the last car wash.

But this growth extends beyond Ohio, with other states like New Jersey, Florida and California seeing an increase in car washes. A firm called Leonard Green and partners from Los Angeles began investing in Mister Carwash. And that really turned into a tidal wave of investment. Now there's 50 plus groups investing in these chains and really expanding them across the country.

When you look at the numbers, you can see why private equity is so excited. There's about 280 million cars and trucks across the country and they tend to get pretty dirty. Secondly, the industry is already big and growing substantially. And over the last couple years, despite all the dislocations and uncertainty of the economy, it's been growing at about 5% annually.

So the real strategy here is the membership model. The way that so much of the economy has geared towards services that people like, having these sort of recurring memberships that allow you to do a car wash or do something whenever you want, whenever you please. And that's sort of the hook that really has driven profits in the industry. We have customers that honestly come every day with the membership. You have unlimited time. If you want to come every day or all day, you could do that.

One private equity analyst told me that if you were to change 10% of drivers to this membership model, you would increase the industry's profit from two to 3 billion. On that front, another big catalyst for growth in the car wash industry was 2017. During the Trump administration, this change in tax regulations wasn't anything necessarily brand new, that it wasn't necessarily aimed at car washes.

But because it applied to car washes and the depreciation and the investment in new equipment, it gave investors much more incentive to add new locations and expand, which has helped really fuel the growth of these locations across the country. Technology has changed a lot for car washes, and that's been really central to the economic success sector.

They figured out how to cut expenses just about every single point in the journey. Labor's down, right? The footprint of real estate is down, often because these are smaller facilities. The cost of water is down because they're being a lot more efficient with water. You know, it used to be 150 gallons in your driveway, and now it can be, you know, five or ten gallons because so much of it gets reused.

Wash to wash. Big cities have seen an incredible growth, so much so that you're seeing these so called saturation bands take effect there, where municipalities are pushing back and saying, hey, I think we have enough car washes, we can slow down a little bit. We started off with a moratorium on the acceptance of plans for car washes in that one year period.

We had a market study done, and they determined, if we go more than the five car washes, it's going to start having a detrimental effect on the car washes that are here. And the last thing I want to do is have businesses close. People were happy that we decided to put this band, and it's caused us to look at other things that we have in the city, too.

Other saturation bands have emerged in nearby northeast Ohio cities like and Parma. In Buffalo, New York. A surge of suburban car wash openings in 2023 triggered opposition. Last fall, the planning commission in Lebanon, Tennessee, rejected a permit to build a new Mister Carwash location. In response, the company successfully sued to reverse the decision.

I look at some of the saturation bans that are going on in the car wash industry and you know, I look at it from their perspective as well as ours and this is tough. Obviously I'm not excited about any potential bans or anything in our industry but I look at we have 16 locations in multiple different cities.

When we enter a community, you know the economic impact. So for every one team member that we bring on site, it actually affects seven to nine local businesses. On another front, we generally take over blighted distressed properties. In Streetsboro we took over an old Perkins restaurant and we're building a $6 million street structure there.

That structure then gets reengaged with property taxes and this is a direct investment into the local school district. There's 100,000 cities in America and I know that there are places out there that need a car wash and want a car wash. And whenever we get someone that decides to locate in the city, there are always going to be people that are for and people that are against.

Business, Economics, Entrepreneurship, Private Equity, Car Wash Industry, Saturation Bans