The Economics of Everyday Things - 21. Car Washes

Episode Date: October 16, 2023

Why are these sudsy roadside stops one of the fastest growing industries in America? Zachary Crockett takes a look under the hood. RESOURCES:"Private Equity Wants to Wash Your Car," by Miriam Gottfried (The Wall Street Journal, 2022)."California Labor Commissioner Recovers $282,000 for Car Wash Wage Citations," State of California Department of Industrial Relations News Release (2022)."Sgt. Clean’s Future Shines Bright Thanks to Subscription Model, Strong Reputation," by Vince Guerrieri (Crain's Cleveland Business, 2018)."One California Drought Winner? The Local Car Wash," by Lauren Sommer (Marketplace, 2015).Sonny's CarWash College.

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In the TV drama Breaking Bad, Walter White is a high school chemistry teacher turned to meth kingpin, and he needs a business to launder his drug money. Something that won't attract attention, but still brings in large amounts of cash every day. He considers a laser tag facility, a nail salon, but ultimately, he and his wife Skylar settle on the most boring enterprise they can find. You want to buy my car wash? I do, and I am prepared to talk numbers right now if you'd like.

You think this is an easy job? You are willing to get down on your hands and knees and scrub like a housemate with all the chemicals, eating into your nice skin and stinging in your eyes. There's nothing glamorous about a car wash. Their scene is outdated and labor intensive. Customers worry about scratchy bristles and harsh detergents. But folks in the industry want you to know that car washes have entered a new era. And business has never been better.

There's a lot of wind behind our sales right now. The car wash industry sort of quietly has to be rivaling almost any other industry in terms of its transformation and growth. For the Freakonomics Radio Network, this is the economics of everyday things. I'm Zachary Kraket. Today, car washes. That guy we just heard, his name is Eric Wolff.

He's the CEO of the International Car Wash Association. It's an industry group that represents carwash owners and suppliers. Part of his job is to make car washes sound like the greatest place on earth. Going to the car wash, it's kind of fun, right? I mean, you've got smell, you've got colors, you've got sounds. In the past few decades, the car wash industry has entered its golden age. Customers are flocking to them like never before. We've really seen an explosion in demand, so we do as an example a national consumer study every year. When we started in back in 1996, more than half of people with cars in the US reported

that they most frequently washed their car themselves in the driveway. Our most recent survey were approaching 80% now use a professional car wash. Car washes are now a $16 billion business in the US. They're around 80,000 of them in North America. And on any given day, they service 8 million vehicles. Now, some of these stations are self-service. You get out of your car, pay a few bucks,

and wash it yourself. But the majority of them are what industry professionals call express washes. You as the customer are pulling the car onto a conveyor you're staying into it, you're riding through the tunnel while the machines do their work, and then you either drive off in three minutes or you have the chance to go ahead and vacuum the vehicle yourself. Most express car washes are owned by small to mid-sized regional operators. People like Brian Cruz.

I spent eight years in the Marine Corps. That was a bomb builder. And after I transitioned out of that, I worked for corporate America for a little bit. And in 2008, I was an executive banking recruiter. And we all know what happened in 2008. After Cruz got laid off, he teamed up with his friend and ran a chain of convenience stores. A few years later, he met a guy who owned a car wash. He invited me to go to a show in Atlantic City. I fell in love with the industry. Cruz did what any aspiring car wash owner would do.

He went to a car wash college, an intensive course in Tamarack, Florida, run by a car wash equipment supplier. He studied up on maintenance, machinery, and operations. Then he decided to buy a car wash of his own in Norquist, Ohio. It was run down, unprofitable, and out of date. It was a very old school. You'd get out of your vehicle. There would be an attendant there.

He would jump in the vehicle, drive up 10 feet inside the dark, grungy, dingy tunnel. They would get out of the vehicle, they'd pressure wash the vehicle, and then send the vehicle, unmanned through the car wash. The equipment was in disarray. Maybe three quarters of it didn't even work. Crews managed to turn that car wash around. And then he did it again and again and again. Today, he owns Sargent Clean, a chain of 15 car washes, all in Ohio. His strategy was to integrate a lot of technology. On the surface, a car wash seems simple enough. You drive into a tunnel, the

dirt, the dust, the bird poop, it all gets blasted away with soap and water jets, and your vehicle comes out sparkling clean. But inside that tunnel, there's a whole hidden world. The consumer rolling through will see the conveyor they put the car on and they'll see the cloth brushes going by the car touching the car. They'll see the detergents and suds. What they're not seeing though is a lot of the computer systems and a lot of the cameras that are there to help us most effectively and safely wash that vehicle. That technology is put to use as soon as you drive in. One

problem with older car washes is that no two cars would get the same quality of wash. The Mazda Miata does not clean like the Ford F250 and the Chevy Taho does not clean like the you know outier, smaller sedan. Today's modern car washes use cameras, artificial intelligence and sonar to personalize the wash to each car. We know how tall it is, how wide it is, how long it is, the contour of the vehicle. So for instance trucks, we don't feel it's efficient to throw soap in the back of an open truck bed. So we're going to get that soap to a certain level, shut it off. The open bed goes, we turn it back on to get the sides in the back of the car. They also have sensors in place.

To avoid the industry's age-old nightmare, car accidents inside the tunnel. In years past, a customer would push on the gas or hit the brake, and it would cause the car's to pile up. So we have a system called no pile-ups. And what that does is actually gives the teammate who's sending the cars behind them, confidence that all these cars fit into a box. And if one car jumps outside this box, it shuts the car wash down, where in a year's

past, that could create 3, 4, 5, 6 car pile-ups and nobody knows. That still doesn't prevent the occasional customer screw-up. Like the guy in his 80s who visited one of Cruz's car washes a few years ago. He's in this nice suit and it's a khaki color and we hit the send button. He starts rolling up the window and it doesn't khaki color and we hit the send button. He starts rolling up the window and it doesn't go all the way up. This poor guy goes all the way through the car wash with his window three quarters down. He's drenched in water and soap and here's the thing. He wasn't mad. He pulled out five dollars from his wallet and said, hey guys,

I'm sorry I didn't pay for my dry cleaning. Older customers in particular, also tend to be the most skeptical of new fangled machinery. Back in the 1970s and 80s, many car washes used plastic bristles that could damage your car. Decades later, that stigma still haunts the industry. That's the first question they always ask, is it brushless or does it have brushes? We've transitioned to a product called NeoGlide, which is actually foam.

It's a safer, gentler way to clean your vehicle. So those little fingers, if you will, those foam wraps will hit all those little nooks and crannies of your car. All of these advancements have made car washes safer and much more efficient. At an express wash like Sergeant clean, you can get in and out in less than five minutes. That efficiency doesn't come cheap. Cruise says that building a car wash like this costs around $6 million. a car wash like this costs around $6 million. His monthly electric bill runs around 7,000 bucks. Water can easily top 9,000. And that water is also a political minefield. There are all kinds of laws, federal, state, local, they govern water use at car washes. If you're ever to watch a car wash being constructed, you'll see massive tanks underground,

and that will be so that we can store that water we're using and recycle two thirds or more of the water that's touching your car as being reused for every subsequent car after it's cleaned. If you wash your car at home, you'll likely use around 100 gallons of water. That's so excessive that some cities and drought-stricken states have temporarily banned washing at home altogether. By contrast, an efficient car wash might only use one-third as much water. I would say on average 22 to 27 maybe 30 gallons per vehicle is used through the wash process. But the modern car wash is most important innovation might be at the cash register. That's coming up.

Technological advancements have dramatically transformed car wash operations, but the business model is changing just as much. If you go to a car wash today, you're likely to be offered a monthly membership. We fix a little RFID sticker in the bottom corner of your window. And it knows exactly what wash to get, how often you've washed, and what vehicle you're in, and any contact information.

It's kind of like a barcode, if you will, for your vehicle. And when you pull up to the pay station, the gate goes up immediately. At Sarshan Clean, you can get what's called a silver tier wash, which includes wheel cleaning for $17. Or you can pay $27 a month for unlimited visits. Brian Cruz says that 60% of his customers now go for the latter.

The unlimited program that we offer, you know, less than two visits that pays for itself, and then for us, it provides a steady stream of revenue, you know, residual income on an ongoing basis, and we're not really dependent upon the weather anymore. The model is similar to what you'd see at a gym. Some people use it 10 times a month, and others sign up and then never go. The people who never go essentially subsidize the people who go all the time. Of course, there are also people who take it to an extreme. From one of our facilities, the general manager, she kept saying,

you know, there's this guy, he washes like five or six times a day. And I went, wait, hold on, no, no, no, no, no, you mean a week or you mean a month, they're like, no, so they pulled the report up and this guy was washing five or six times, he would come out of the end of the tunnel, circle back around and go right back in. of the tunnel, circle back around and go right back in. Historically, carwashing has been a labor-intensive business. That's been a huge expense for owners. And there are many cases of operators taking advantage of undocumented workers to reduce costs.

They might stiff them on minimum wage or overtime pay. Carwashers that have integrated technology and membership They might stiff them on minimum wage or overtime pay. Carwashers that have integrated technology and membership models have eliminated that issue by eliminating some jobs. A modern car wash today can be run with three or fewer employees versus having, you know, 12 to 25 at some stores back in the day. And those days, car wash owners were almost like farmers. I mean, you're always watching the weather.

You're always trying to anticipate what demand is going to be so you can manage that labor expense. All of these efficiencies have attracted institutional investors. There is a ton of consolidation that has happened in the last five to seven years. There is a ton of outside investment coming in in largely in the form of private equity. What was once an antiquated industry is now a cash flow machine. Some express locations can gross over a million dollars

a year in revenue and wash upwards of 200,000 cars per year. Not everyone can be a customer though. Over the years, American vehicles have gotten much bigger and more geometrically complex. That means they're harder to clean. Early on in our industry in the 60s, you know, all cars were square. They were very boxy and it was a little easier to clean those cars then.

Now, with the different contours, the sleek and the different visions that car makers come out with, just makes it more difficult for us to clean the car. And I often use the tagline, we wash 80% of the cars, 90% well. We can't wash vehicles with ski racks, or bike racks, or ladder racks. The H1 Hummer, we can't wash that. That said, Brian Cruz has seen some atypical vehicles make it through his car washes. We've actually washed

limos in the past. Like where is this vehicle then? The car just keeps coming out like maybe pulling out a piece of taffy. That's hilarious. But when he thinks back on his journey, one customer stands out in his mind. It was a guy who kept coming back every day. So often, and for so long, that Cruz just had to ask, why? So I go out and I'm talking to the guy,

and he looks at me and he pauses and he said, this is the first thing that my entire family has ever owned is this car. So, you know, we're just a car wash, right? We're not, you know, developing the cure for cancer or reinventing the wheel, but we get to impact tons of people's lives. That's incredible to me. For the economics of everyday things, I'm Zachary Crockett. This episode was produced by Sarah Lilly, with help from Lyric Boudich and mixed by Jeremy

Johnston. I remember when I was like eight years old. I accidentally washed my dad's car with a scrubby. Oh no. And I just like ruined his paint job. You can't be pointing fingers, or even inferring that to us when you've done that yourself. Come on. The Freakonomics Radio Network. The Hidden Side of Everything.

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