The Federal Reserve recently announced a strategy of interest rate hikes to help stave off rising inflation. However, pundits worry the Fed may raise rates in a manner that will throw cold water on economic growth creating the potential for a recession.
Consequently, many econo-mists believe we may be in for a bumpy ride over the next year or so. Of course, bumpy rides aren’t anything new, and veteran car wash operators have demonstrated the ability to cope when they occur.
Here, the ability to cope is primarily a function of preparedness. For example, as part of due diligence, lenders require developers to submit one-, three-, and five-year projections and breakeven analysis.
Projections are typically grown in a linear or stepwise manner, reaching maturity volumes by the end of the second or third year of operation.
As shown in Figure 1, plotting the projection data suggests a predictability or stability of which lenders are fond.
However, reality is most often quite different. To illustrate, consider my area in Florida. According to data from Visit St. Pete/Clearwater, Pinellas County has a population of 975,000, but it attracts roughly five to six million overnight visitors annually.
These visitors are a combination of tourists who fly and rent cars or drive their personal cars here and part-time residents or snowbirds. Snowbird is a term used to describe travelers, most often retirees, who stay in areas with warmer climates during the winter months.
The bulk of tourists visit between March and early May and between October and early December.
However, sandwiched between these months are June, July, August, and September where the daily chance of precipitation varies between 50 percent and 70 percent. Moreover, if there is a tropical storm or hurricane, demand may wane for several weeks.
Another variable car wash operators must consider is love bugs which swarm for several weeks during two specific mating seasons: April to May and then again in August to September. Love bugs are a hazard because the sun can cause their remains to turn acidic and damage car paint within a day.
Another driver that spikes demand is tree pollen season which peaks during March, April, and May.
Finally, there is the volatility caused by peaks in demand that occurs around the holidays such as Thanksgiving, Christmas, and Easter, and special occasions such as Mother’s Day, Valentine’s Day, and so forth.
Applying these factors against the baseline, we can get an idea of how much business can fluctuate as compared to the stability shown in projections. Moreover, things are usually not the same from year to year.
According to the bug experts, the severity of love bug season depends a lot on the amount of rainfall. If the habitat is too wet, they drown. If the environment is too dry, larvae dry up. If conditions are just right, the numbers of bugs can be horrendous. Likewise, the severity of the tree pollen season is affected by rain, wind, and temperature.
Another factor to consider is housing. According to Pinellas County Housing, only 54 percent of single-family homes in the county have an attached or detached garage. Moreover, due to the height of the water table, homes do not have basements. Consequently, a lot of folks use their garage to store stuff and park their cars out front or in the driveway.
As a result, these vehicles are subject to bird droppings, tree sap, lawn sprinkler over-spray, condensation (overnight), UV, and so forth. UV is a particular problem in Florida due to the incident of solar radiation and number of days of sunshine.
Under normal circumstances, without many preventative measures, it typically takes between eight and 10 years for the sun to fade a vehicle’s factory paint job. For vehicles sitting on the street all day directly under the Florida sun, you can cut that in half.
In the final analysis, there are many circumstances that occur throughout the year when cleaning and protecting a car is essential regardless of how much money people have.
Nevertheless, a lot of people are going to be facing tough choices this year on what they choose to spend their money on. Arguably, car wash is going to become a luxury for some of these people unless the price comes down.