• Michael Ford, managing director of Coast Commercial Credit™
• Jeff Pavone, co-founder of Amplify Car Wash Advisors
• Jeff Reichard, president of Proto-Vest Inc.
• Trent Walter, owner/CEO of National Pride Equipment
We asked the panelists to consider four issues of general interest to car care business operators:
1. The economy – the outlook for 2021 and its impact on the car care industry.
2. What effect will the Coronavirus pandemic have on the industry in 2021, and possibly beyond?
3. How will the influx of private equity funds change the car wash business?
4. What other issues should operators expect to have to deal with in the New Year?
Following, the panelists address the first two of these topics. They will return in the January 2021 issue with their views on private equity and other issues facing the industry.
There is no doubt the U.S. economy has been hit hard by the COVID-19 pandemic. Forced business closures and other restrictions meant to slow the spread of the disease impacted the labor market and disrupted everyday life. With that being said, there is a large pent-up demand from people who are eager to get back to ordinary life. They want to get back to work, go out to eat, go on vacation, and just get back to normal.
The fundamentals of the U.S. economy are still intact and consumer demand is still there. When you combine that with the anticipation of a vaccine in the coming months, 2021 could be an exceptional year in the car wash industry.
With or without a vaccine, car washes have shown a remarkable resilience to adversity. However, car washes are just our small part of the world. The general economy does need a boost and we feel it will come when fears of uncertainty surrounding the pandemic are diminished. Since personal consumption expenditures account for nearly 70 percent of the U.S. economic activity, the availability of a vaccine will be the key to giving consumers the confidence to go back out and spend. Reports are saying there will be at least one vaccine approved by the end of 2020 or early 2021, and it should be widely distributed by the end of the second quarter of 2021. With the vaccine, we feel consumer confidence and the overall economy will rebound.
On the financial side, interest rates and inflation look to remain low in 2021. This is largely a result of the desire by the federal government to continue to support the economic recovery. We anticipate loan rates for government-backed loans, conventional loans, and equipment financing to remain at all time lows. Car wash new construction lending and the equipment financing market will continue to be very active with expansion, conversion, and automation being the driving factors.
To no surprise, we are facing unprecedented times. A global pandemic leading to record job losses accompanied with a tremendous amount of geopolitical uncertainty has taken its toll on the U.S. economy. That being said, we have actually seen operators record some of their best months during the summer. 2020 has been a litmus test for the car wash industry, and what we’ve witnessed firsthand is the resiliency of the industry as a whole. We expect the economy will continue to recover from the negative effects of COVID-19, and we do see the strength of the industry accelerating as the economy transitions from a recession to a cyclical recovery. There is the threat of a change in tax law having a negative effect on the pace of M&A activity, which has been a key driver of growth for the industry, but at the end of the day there’s still a robust pool of buyers, which should continue to fuel deal flow in this space. Overall, the current environment has been a good test, and the car care industry could be in for a good year ahead as the economy continues to recover.
The American/world economy will not recover until they find a vaccine or a medical treatment that is effective for the virus. Period. Until then, nothing happens. I do not see people traveling, global trade will struggle, and businesses weighed down by uncertainty will not invest or hire aggressively. We are in the soup until we have some solution that people believe in.
Compounding the situation is our current financial and tax environment.
The reason the market is so high is because experts expect to continue the current policies that were implemented two to three years ago. It is all about the current policies of lower taxes, elimination of overreaching environmental regulations, opening our energy spigot — i.e., fracking — to name just a few. A significant one is the current corporate tax rate which is now 21 percent. If it goes back up to 28 percent, this would be a 33 percent increase!
If in fact the above elements, the drivers of the best economy our nation has experienced, are taken away, would the economy/markets continue to maintain their current levels? Of course, they would not. Classic “cause and effect.”
Our customers advise that their volume is about 17 percent less than normal, a level that will continue until a credible vaccine is accepted by Americans.
While there is no crystal ball for the outcome of the 2021 economy, I am confident the car care industry will continue to prosper. This is based on several visible signs in the car wash marketplace. While car washing expansion and car counts slowed during the initial months of the pandemic, it has since picked up speed. Car wash investors, owners, and operators are learning how to navigate through the pandemic to re-open washes, protect customers, and participate in zoom calls to obtain new construction permits.
Private and personal equity is flowing into the industry like a raging river. If I had a quarter for every time I was asked “do you have a good site you can share with me,” I would have been able to retire months ago. Investor confidence in the car wash industry has never been higher and, in parallel, consumer confidence. There is no need to panic if you are in the planning stages of building a wash or just focused on day-to-day operations. I believe 2021 will continue to bring prosperity to our market as we deliver clean, dry, and shiny cars to the consumer.
We have seen certain sectors of the car wash industry impacted more than others. In general, self-serve, in-bay automatic, and express-exterior washes were impacted less than full-service. This is primarily based on the socially distant nature of the self-serve, in-bay, and express models. This socially distant nature will continue to play a strong role in their continued success. Also, as the vaccines are made readily available to the general public, we see a strong rebound in the full-serve sector.
The negative impacts of COVID-19 are fairly easy to see. However, as they say, every cloud has a silver lining. Going forward, we see opportunity in 2021.
One of the growing issues in the car wash market is qualified labor. With unemployment rates higher than they have been in several years, car wash operators have an opportunity to attract better qualified candidates. Obviously, the key will be to retain these employees as the economy rebounds.
Another opportunity that can be available as a direct result of the pandemic is real estate. Growth opportunities that were not available a year ago, may be ripe for the taking. With commercial real estate investors scrambling to find new tenants, prime real estate for development may now be available. We are seeing car wash investors get the opportunity to acquire locations formerly dedicated to other projects. We expect this trend continuing in 2021.
Heavy investment in automation of car wash facilities is looking to continue. This investment will be led by the express-exterior model. As previously mentioned, the socially distant nature of the express car wash can limit the impact of future pandemic outbreaks while reducing the reliance on manual labor. Because of this and the strong returns on investment, we feel expenditures in automation will lead the way in growth in 2021.
Many existing full-serve washes are converting to express exterior. This trend should continue in 2021. The departure of some should present opportunities for others. In other words, there is always going to be a demand for full service. Therefore, we see those that remain capturing a greater share of the high-ticket full-service market.
While there is likely to be a lasting effect on many industries, the express car wash industry should be relatively immune to the economic impact of COVID-19, as the risk of exposure to the virus is lower. Consumer behavior is likely to change and will disproportionately impact companies in industries such as travel and leisure, and hospitality services. Car washes on the other hand, offer a safer environment for both consumers, operators, and employees to conduct business. In particular, the transition to exterior-only/express car wash operating models limit customer and employee contact, protecting the general health of patrons and staff. For this reason, we see continued interest from financial buyers, leaving car wash sellers with an attractive opportunity to create wealth. That is not to say that the industry will not face its fair share of challenges. With proper guidance and advice, there is a path forward for sellers to maximize the value of their car wash business.
“Please close and lock your tray in the upright position and fasten your seat belt” because 2021 is going to be a very bumpy flight.
Quick question: When it is released, are you going to take the first COVID-19 vaccine to market? Me neither! Even when the first potential vaccines are available there will be great hesitation to be a “guinea pig.” This will dramatically slow down the vaccination of people in the United States and the world.
Once we find an effective vaccine, our lives can return to normal, right? Economists do not think so. Even if the vast majority of the population became immune to the Coronavirus tomorrow, leading economists think it would take six months or more before our economy starts to advance towards pre-pandemic levels. A vaccine, in other words, is not an economic panacea.
There is so much pessimism about what is going on — justified pessimism — that I think we are underestimating how good mid 2021 could be going forward. It will not take years to recover if we solve the virus; we will quickly get our groove back. There will be pent-up demand, and interest rates will continue to be low. We will have a period of good, strong growth beginning late in the second half of 2021 going into 2022 — if the script for the vaccines holds true.
The express car wash is perfect when people do not want to have any contact with others. The perfect product at the perfect time.
There is no doubt that the Novel Coronavirus is here to stay. As with many other infectious diseases such as influenzas, small pox, HIV, malaria, Ebola, and pneumonia to name a few, we as a society have learned how to evolve around their existence. While the effects of the Coronavirus have played a part in the slowdown of our economy and car wash industry to this point, we as a society will evolve and move forward as we have with other infectious diseases. In time we will have vaccines but, more importantly, treatments to address the pandemic. We will continue to improve safety protocols and procedures at car washes. We will gain more data through research about the virus and move forward safely. Ultimately, the effects of the Coronavirus will be mitigated and the impacts on the car wash industry will diminish as with other industries. How long will this take? We can look back at history but, with today’s modern science and society’s personal resolve, I am betting that it will be well under control by the middle of 2021.