Why Are There So Many Car Washes?
Buckle up, we’re going for a ride through the sudsy world of the economic concepts impacting the automatic car wash industry.
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Remember those weekends spent washing the family car in the driveway? That has become somewhat of a nostalgic memory. These days, more and more people are skipping the bucket and sponge and heading to an automatic car wash. You know the ones; they’re like futuristic robots! They can wash a car super fast—typically in just under a few minutes.
The automatic car wash isn’t a new invention, but you’ve probably noticed them popping up much more frequently around town. There’s a reason for that, and it has a lot to do with economics. They’re part of the ever-growing service economy that has prioritized outsourcing daily tasks to someone else. So, buckle up, we’re going for a quick ride through the sudsy world of the economic concepts that have impacted the automatic car wash industry over the past few years.
Efficiency Gains and Automation
First up, let’s talk about why these car washes are becoming so efficient. It’s all about automation. Historically, car washing was pretty labor-intensive, but today’s modern car washes are like a well-oiled machine—literally. Thanks to technological improvements, a simple car can now be washed in just a few minutes. By cutting down on the number of people needed to wash each car, operators can save a ton on labor costs or shift those workers toward more high-priced services like interior detailing or hand waxing.
Not only have car washes saved on labor, but they also now use less water and electricity per wash. Reducing the input costs associated with cleaning a car means increasing profit margins. Leveraging additional technologies like high-pressure washers, computer-controlled systems, and water recycling processes can cut costs even more, further improving profitability.
Changes in the tax code back in 2017 have also added another layer of incentive, enhancing the financial attractiveness of launching or expanding automated car washes. All in all, the past decade has seen a dramatic reduction in the costs of cleaning a car. That alone would typically be enough to result in an increased supply of car washing facilities, but there have also been improvements on the revenue side of things as well!
Cultural Change Fuels Demand
While technological improvements have driven down costs for operators, there has also been a significant cultural shift increasing demand for automatic car washes. It’s all about convenience. Everyone’s busy, so saving time is a big deal. Instead of washing your car on your own, zip into a car wash to get it cleaned in no time, and carry on with your day. A lot of people are willing to pay for that convenience. Revenues from car washes around the United States are up 28% since the pandemic.
It’s important to remember that many automatic car washes have incorporated price discrimination strategies by jumping on the subscription trend. Pay a set amount every month and can wash your car as often as you want. Car wash operators enjoy a steady revenue stream while customers see it as a membership for unlimited car washes. This model is reminiscent of the gym membership structure, which takes advantage of the behavioral economics of consumer habits: once subscribed, consumers are more likely to use a service even if they don’t need it.
Monopolistic Competition and Market Dynamics
But here is where understanding economic concepts gets interesting. You might think that with lower costs and lots of new customers, car wash owners are just making money hand over fist. But the easier it is to make money, the more people will start car washes looking to get a piece of the action. This industry is what economists call “monopolistic competition,” and helps explain the rapid proliferation of car washes across suburban landscapes.
This market structure is characterized by low barriers to entry and differentiated product offerings. When an industry has low barriers to entry, it means that any entrepreneur with sufficient capital can open a new car wash. This freedom to enter the market is typically followed by a rush of new entrants, each hoping to capture a slice of the market. As new car washes enter the market, the demand for established firms decreases, reducing the original firms’ profits. As the market matures, we might expect only the most efficient or innovative providers to survive.
Monopolistically competition industries also have a lot of businesses offering slightly different services or perks to stand out from all the other firms. For car washes, this could be faster service, better washing technology, or eco-friendly cleaning products. This competition is good for us as customers because it drives the businesses to keep improving and keep prices low. However, not every new car wash will thrive. Only those that can keep costs down and continue to attract enough customers will stick around.
Final Thoughts
The car wash industry will need to keep evolving. New technologies and changing consumer preferences will shape how these businesses operate. For example, they’re facing more scrutiny for environmental reasons—like water usage and chemical runoff. As people become more environmentally conscious, car washes that use less water or cleaner chemicals might become more popular.
The next time you drive through an automatic car wash, consider all the different economic concepts at play in the industry. The car wash was once a symbol of weekend chores but now highlights the ever-changing economic landscape. The automatic car wash isn’t just a place to spray down your sedan. It’s a real-world example of economic principles at work
In 1996, 52% of consumers primarily washed their cars at home; by 2023, 79% of consumers preferred to use a car wash. [International Carwash Association]
The first “automatic” carwash opened in Hollywood, California in 1940 [Rocket Carwash]
Alliance Inspection Management is the largest company in the Car Wash & Auto Detailing Industry with $28.1 million in revenue and 0.1% of the market [IbisWorld]
There were a total of 18,520 car wash establishments in the United States in 2021 [U.S. Census Bureau]
As of May 2023, the car wash industry employed 365,290 workers, with Nebraska featuring the highest job concentration in the country [U.S. Bureau of Labor Statistics]
I live in suburban Atlanta, and I have very few automatic car washes near me. The few car washes near by are all hand wash. There was a small automatic car wash behind a gas station a couple of miles away, and five or six years ago it broke and closed. When it reopened it was a hand car wash. They just used the building as shelter. I'm assuming it was too expensive to fix? The closest automatic car was to me is about 20 minutes away, and I live in a fairly dense area.
It's interesting that private equity firms seem to be entering this market, buying up and consolidating existing sites and attracted by the subscription revenues. The lesson from other markets is that there is a very real risk of over capacity.
Up until recently the UK was going in the opposite direction. Thousands of sites manned by immigrants from Eastern Europe had set set up around the country. Competition from relatively cheap labour and the convenience of just handing over cash meant automated sites were closing down. Brexit coupled with tougher immigration laws has meant automation is starting to make a comeback.