The Economy and New Construction

[Dean Taylor]

Note: This is in reference to New Car Wash Construction:

As a reclaim system manufacturer, I talk to distributors and manufacturers of many car wash product brands on a daily basis. Some of the manufacturers are MAJOR suppliers in this industry.

What I'm hearing across the board almost verbatim is "business is terrible" and "the banks aren't loaning money." One distributor told me he has 11 car washes ready to be built but again, the banks aren't loaning. There are many others saying the same thing but 11 is the biggest one I've heard to date.

As a manufacturer, I understand that the politically correct thing to say is "We're doing great!" I mean, if everyone else is hurting and we're doing great, it must be because we have the ultimate products, right? Wrong...

Fact is, if any manufacturer or distributor tells you how good they are doing (new sales), unless they have some secret market they are selling into, they are most likely lying.

My business is holding on but to be honest, we're not doing great. I had a record year in 2007 and right behind that, my worst year in 2008. 2009 wasn't much better. And it's not because of my products, we are at or near the top of about 12 competitors.

Some may see my honesty as a weakness, some may actually admire it. I choose to run my business on honesty. I challange others in the industry to be honest about your businesses.

Do you have the guts to be honest? Or is it politically incorrect?

 

[Greg Pack]

Well Dean, even here on this forum,if you are too honest about business you are labeled as negative, chicken little, etc. You're told you're not being positive enough, you're not making lemonade out of lemons, (insert your favorite self- help guru quote here)and things will never improve if you don't change your attitude. Now I'm not disputing we could all tweak our customer service and marketing, but I've tried to give away free car washes in the rain, and it just doesn't work.

I believe and respect honesty from my suppliers and fellow operators. We are being hurt by the economy and the uncertainty of what lies ahead. But here in the Southeast absolutely frigging hammered by the weather. Lower revenues and higher expenses means the the value of our washes is shrinking, and as financing has become difficult, the value will shrink even more, at least in the short-mid term. And watching these brand new washes of all formats plummet in value is not conducive to building new washes. We have a bunch of >5 yr old express washes here in my area that are dead men walking. Why go spend 1.5 million when you can buy one for half or third of that if you are patient? There's nothing that makes me want to go out and finance a new wash right now, and in this immediate area I'm gonna question the sanity of those who do. A guy I know in real estate said it best- if you buy now, in five years you're gonna look like a sucker or an genius. But is just a guess right now as to which.

I did talk to a local distributor and he said the same thing. Not many people are willing to build. Those who do had better come to the table with experience in the industry, good credit, and a big down payment. lacking in any one of those is getting the applicant declined. Several banks here have quit loaning without 20% down AND SBA guarantees. The pendulum has swung too far again, maybe it will settle down in a few years and sanity will return to this market.

 

[robert roman]

Yes, the environment for new carwash construction does suck in certain markets. However, banks are loaning money. I have several clients that have just secured funding for new carwash projects. Not all markets are on the down swing.

What is different now is banks are requiring borrowers to pay more for debt. This means shorter terms (including balloons) and carrying less debt (larger equity injection). My take is that many borrowers are just not willing to pay this price because it lowers cash flow and return on investment. Unfortunately, this environment is likely to last for a while.

The good news is that commercial real estate may be approach full contraction. If so, this would be a good time for people with the cash to start scouting out new sites and looking for distressed properties to acquire before the market starts to grow.

 

[pitzerwm]

I'm no lover of banks or bankers, but with Washington, threatening them every day with some new tax and regulation, you can understand why they don't know what to do.

I'm the first to agree that when everyone else is scared its time to act, but I'm not sure that until Nov. when we find out if the landscape in Washington will change, I'd be hesitant to obligate myself to any debt.

 

[mac]

Dean, let me give you another example of how bad it is. To drum up business I sent out a mailer offering one free hour of service with no strings attached. I offered to show up and do anything for one hour for free. That could be fixing something, troubleshooting or even cleaning up the lot. Out of 150 cards sent out I got two responses.

 

[Greg Pack]

Dean, let me give you another example of how bad it is. To drum up business I sent out a mailer offering one free hour of service with no strings attached. I offered to show up and do anything for one hour for free. That could be fixing something, troubleshooting or even cleaning up the lot. Out of 150 cards sent out I got two responses.

Mac, that does seem like a really good idea. I'm surprised you didn't get a better response.


I understand operators in the northeast were having a decent period. Anyone confirm that? I admit I tend to let recent history affect my attitude about the business.

 

[Waxman]

Mac, that does seem like a really good idea. I'm surprised you didn't get a better response.


I understand operators in the northeast were having a decent period. Anyone confirm that? I admit I tend to let recent history affect my attitude about the business.

So confirmed. Good weather=busy carwash day.

 

[mjc3333]

CFCW,

Here in the northeast it has been OK, not great, not horrible.

It depends on what part of the northeast.

I can't say it enough; WEATHER is the primary factor in getting cars washed!

You can give away whatever you want, service, price, product, when the weather does not cooperate we all lose.

If it's not dry and sunny on Fri Sat and Sun, we lose that week and have to hope to make up the difference the next. If the pattern repeats, you get deeper in the hole.

Customers do not want to spend money on services upfront, as let’s say a monthly pass etc. They are all about hand to mouth.

My bonus token sales are down the past 2 years. They only want to spend what they have to at that specific time.

 

[mmurra]

I like the idea that new car washes will require more "skin in the game". Too many washes that have failed in our area were bad investments from day 1. If it is worth building, it is worth building with more investor money at risk.

 

[robert roman]

I don’t believe that it is all about the weather, all the time. Sometimes the economy is just as responsible for lackluster carwash performance as poor weather conditions.

In many parts of Florida, consumers have been sacked by falling real estate values, rising cost of living and job loss. One county south of where I live estimated that it would need to add 15,000 new jobs to return to the employment levels that existed just several years ago. This means 2,500 new small businesses or 30 larger companies each employing 500 people. In this environment, good luck. Unfortunately, this scenario exists in many counties throughout the state.

Where this scenario doesn’t exist, you will find, say, an express exterior carwash being offered for sale at 10 times EBIDTA. Where it does exist, things aren’t nearly as cherry.

The last several projects I worked on in Florida, over 25% of the market was listed for sale. In one city, almost half of the washes were listed.

Is express exterior immune? Not really, at least in Florida. Currently, there are more than a handful to pick from including new sites (< two years old), full-service to express conversions with history and conversions with no history. A few sites appear distressed and some are being offered at less than replacement value.

Projects bad from the get-go? In my opinion, many of them should not have been built. Would more skin in the game have prevented some from being built? My guess is “probably not” because it was too easy to obtain debt and express was an easy sell to those looking to get rich quick.

Even with all this, I still see opportunity for new carwash development (all types) and redevelopment in parts of Florida.

 

[cebo]

That all we hear out of washington is how they are going to get money to community banks to lend to small business. I talked to one of my bankers last week & he told me they had plenty of commerical loan requests but nearly every one was for operating capital to get over the "bad times" and nobody requesting loans for capital improvements or equipment. They are not going to loan to people who are having trouble paying the bills.

Its the same in residential. One broker I talked to last week told me he turned down 8 people in one day for credit issues. Every realtor I talked to tells me plenty of buyer but they can't get the money and we are in an areal that has seen very little declines in value (top end only). I guess the lender's were smoking drugs and decided to finance anybody who could fog a mirror and now Bill Gates would have to pledge his dog and life insurance to finance a YUGO.

With what some of the CW forclosures are going for and rumors of more in the metro area north of me I would be hesitant to loan on NC also.