2010 State of the Industry Report

As difficult as it can be, we know that the current economic recession will end eventually. The factors that worked together to stifle the economy also serve as road markers to help us navigate back to financial stability. The problem is not all of these indicators get back on track at the same time, and some of them have more direct influence on the health of the carwash industry than others. And, none of them, unfortunately, can do anything about controlling the weather.

As we closed in on two years since the official start date of the recession (December 2007), the Labor Department announced in November that the economy was growing for the first time in a year, buoyed primarily by positive signs in the housing market and some loosening of purse strings by lenders. In addition, the Consumer Price Index rose 0.3 percent in October, posting its third consecutive monthly gain and rising for the fifth time in six months. For the 12-month period from October 2008 to October 2009, however, the CPI was down 0.2 percent.

Still, the energy index also rose in October for the fifth time in six months, advancing 1.5 percent behind increases in each of the sectors for gasoline, fuel oil, natural gas and electricity. In addition, the indexes for used cars and trucks, as well as new vehicles, rose sharply, accounting for 90 percent of the increase in the index for all items, less food and energy. The new vehicle index was up 3.8 percent for the 12-month period, while the index for used cars and trucks posted a 2.3 percent gain.

Those are all positive signs that the national economy is moving in the right direction, although enthusiasm was tempered by continued growth in the unemployment rate, which rose to 10.2 percent in October — its highest rate since April 1983. At the end of October, the number of unemployed Americans stood at 15.7 million, and 35.6 percent of them had been jobless for 27 weeks or more.

Those are sobering statistics to be sure, but the rate of unemployment slowed significantly from August to October, compared to the previous three months. Total nonfarm job losses averaged 188,000 per month from August to October, compared to 357,000 per month from May to July. From November 2008 to April 2009, job losses averaged 645,000 per month.

The economy’s affect on the car care industry has been a mixed bag. Some carwash operators have reported decent years, volume wise, but revenues for many segments appear to be down as some consumers have cut back on the frequency of their visits and/or the amount of money they are willing to spend on a wash. This has posed a challenge for many full-service carwash operators, some of whom have opted to change their business models to flex-serve or add exterior-only wash packages and incentives.

This is all a continuation of the effects and positioning that began several months ago, before analysts ever officially declared a recession. As always, the trump card for many carwash markets is the weather, and plenty of operators say their numbers have been adversely affected more by weather patterns than economic factors.

For Jax Kar Wash, a small full-service chain based out of Southfield, Mich., business was off about 8 percent through the first 10 months of 2009, but owner Bruce Milen believes the operation’s numbers were hurt more by off days caused by weather than any economic impact.

“Comparing our weather to 2008 shows that our business is off because we have been losing many weekends,” notes Milen. “Had we had good weekend weather, I believe we would have equaled the volume of 2008 or surpassed it. I believe that the answer is with the weather. If we get the weekends we will be OK. If not, our wash volume will continue to suffer.”

The Southeast also was hit hard by rainouts, marking a tough turnaround for a region recently beset by drought. Gary Dennis, owner of Ultra Car Wash, a small chain of exterior express locations in Georgia and Alabama, reports that his facilities experienced 36 weather days in September and October alone.

Business also was down somewhat for Autobell Car Wash, a major regional player with 58 locations in four southeastern states. “Business at Autobell Car Wash was off slightly this year due to the economic climate and weather conditions in the Carolinas and Georgia,” says Chuck Howard, Autobell president.

But many operators view marginal or poor numbers in 2009 as a continuation of declines experienced in 2007 and 2008, performances that coincided with the economic collapse.

“The characteristics of this ongoing recession — high unemployment, frozen credit markets and low consumer spending — have impacted most carwash operators and vendors alike,” notes Bill Carbonel, president of the Western Carwash Association and owner of River City Car Wash in West Sacramento, Calif. “2009 found many operators slashing costs and reinventing themselves to meet the demands placed on them from 2009’s economic climate.

“I anticipate that while economic indicators may show a bottoming out of the recession, high unemployment will linger for several years,” he continues. “As long as unemployment remains high, consumer confidence will remain low. However, as more consumers feel that they have seen the worst, confidence should also stabilize and slowly rise.”

Carbonel is hopeful that restoration will develop this year, stabilizing carwash volumes and perhaps spurring increases.

“I think it will be a very slow and cumbersome recovery,” he says, “but a recovery nonetheless.”

Leery Lenders

A full recovery for the industry is likely tied to the lending market. Many operators have put off or scrapped projects for months due to a lack of cash flow and available credit. For small operators with little wiggle room, long delays