🚗Dirty Car = Clean Profit?

Today I’m featuring a deep dive contributed by Karina Petrunova, a long-time reader with a background in software and tech investing. The analysis was edited and curated by RTC, and we also teamed up to conduct a GLG-style interview with a current car wash rollup operator to capture the ground-level insights, included at the end of this piece.

Let me know what you think! If you all enjoy this format, I’ll look to feature more high-quality guest contributors and collaborate with them.

I might be showing my age here, but back in the day, car washes were truly mom-and-pop businesses. There was very little standardization or brand recognition, and sometimes just a group of guys with a sponge and a bucket.

But new technology, a decade of changing consumer behavior, and one very specific financing regime turned the industry upside down, making it a prime target for private equity consolidation.

Origins: Why Car Washes Became Attractive in the First Place

1914 – The very first car wash opened in Detroit in 1914 with just a sponge and a bucket.

1946 – Semi-automated technology arrived: a conveyor belt, overhead sprinklers, and a 50-horsepower air blower. While this was a major development, the car wash industry was still very labor-intensive, local, and fragmented. 

1951 – The first fully automated wash debuted in Seattle with soap dispensers, brushes, and dryers, largely defining the car wash we know today.

2001 – About half a century later, Ben Alford (owner of Benny’s Car Wash) introduced the modern express wash which featured automated pay terminals and gates. It was this that set the stage for PE roll ups. The reduced labor need + membership model = repeatability, scalability, margin expansion, and ultimately roll up opportunities.

Enter Private Equity

2006 – Carlyle acquired International Car Wash Group (ICWG) for ~£450M, often cited as the first large-scale LBO in the space.

2014 – Leonard Green & Partners (LGP) acquired Mister Car Wash (MCW) for ~$500M, beginning the first major U.S. roll-up. At the time, MCW had only ~134 locations. LGP initiated what is considered one of the first large-scale PE-driven roll-ups. 

LGP later took MCW public in 2021, and today the chain boasts 527 locations across 21 states.

2010s to 2020s – A flood of PE investment followed, mainly from real estate or B2C focused sponsors. This wave of activity included Clear Sky Capital’s acquisition of Racecar Express in 2016, Red Dog Equity’s acquisition of Mammoth in 2018, and Palladin Consumer’s acquisition of Splash in 2023.

The category finally looked scalable, leverageable, and predictable. Even celebrities joined in - Jason Derulo, Travis Kelce, and Shaq, to name a few.

The Low Interest & Low Taxes Era

2017 – Congress introduced the 2017 Tax Cuts & Jobs Act (TCJA) which allowed businesses to depreciate 100% of capex on equipment-heavy assets like car washes, enabling buyers to immediately write off the full value of equipment in the first year. 

While the TCJA was originally designed to phase out bonus depreciation over time (80% in 2023, 60% in 2024, and so on), the One Big Beautiful Bill Act (OBBA), introduced in 2025, permanently restored 100% bonus depreciation in Year 1.

2020 to 2021 – With historically low interest rates in the ZIRP era, real estate cap rates compressed, and investors became increasingly starved for yield. This created the perfect opportunity for car wash sale leasebacks (more on sale leaseback & tax savings below).

2023 to 2024 – Tight credit, higher rates, and competitive saturation start to bite. As M&A volume fell in 2023 and beyond, the primary growth focus shifted from aggressive acquisitions to building density in select markets.

2025 – The year we witnessed potential cracks in the car wash industry. 

ZIPS Car Wash (backed by Atlantic Street), the 8th-largest U.S. chain, filed Chapter 11 bankruptcy with $645M in debt and just $1M in cash. In its filing, ZIPS noted, “while the demand side clearly impacted the Company in the past two years, so did the supply side of the equation. The car wash industry has experienced a spike in new players and invested capital, with approximately 900 new car wash sites being constructed annually for each of the past five years.”

While it feels like a crowded market today, car wash space has been attractive for several reasons:

Where a traditional, full-service car wash might employ 5-7 staff members per shift, exterior express sites can run with just 1-3 staff members all while producing more consistent car wash quality. Cutting staffing from six employees to two reduces annual labor costs by roughly $250-300K per site (!)

There are ~275M registered automobiles and consumer vehicles on the road in the U.S. and whether gas or electric, they all need to be washed.

The U.S. has ~17K conveyor-belt washes; the top 10 operators control only ~18%. A fragmented industry + small operators = ripe roll-up opportunity.

However, as discussed later, one may argue that the investable TAM might paint a different picture.

There’s been a clear evolution in consumer behavior: (i) people no longer want to wash their cars themselves and (ii) consumer products like Spotify and Netflix further rewired consumer habits, making subscriptions the default way to buy—even for car washes.

The real power of the modern car wash model comes from converting light users (1-2 washes per month) into monthly subscribers. On the flip side, the heaviest users (4+ washes per month) are the least profitable (and often less profitable than a non-member, retail customer). Here’s a simplified illustration of car wash unit economics:                 

Car washes also came with an opportunity for investors to get creative, leveraging (i) sale-leasebacks and (ii) 100% bonus depreciation.

As PE owners began acquiring and consolidating car washes, they needed capital to fund roll-ups, build new ground-up sites, and install express-tunnel equipment. The average investment required to build an express exterior car wash is ~$5M.

Breakdown of Capex Requirements

Sale-leasebacks became an ideal solution: operators sold the underlying real estate and leased it back under a long-term rent structure, potentially unlocking $2-4M+ per site.

And then in 2025, Trump permanently reinstated the 100% bonus depreciation, enabling car wash platforms to minimize taxes by expensing capex upfront. Here’s an illustration of how cash-on-cash returns increase by 2x+ with financial engineering.

Private equity firms that dove into the car wash business followed a similar playbook:

From large TAMs and fragmented industry to great unit economics and repeatable value creation play, car washes presented itself as a great opportunity to PE investors. But what lies on the other side of the coin?

1. Investable TAM
Cheap debt and favorable financing led to a rapid surge in car wash M&A. However, that easy roll-up phase slowed by 2022-2023. And while opportunities still exist, they’re no longer the low-hanging fruit they once were.

While the industry appears incredibly fragmented on the surface, the pool of institutional-quality targets is far smaller than the headline numbers suggest. Of the ~10K express-exterior conveyor sites in the U.S., only ~7K are considered high-throughput (meaning >100K washes per year), which may reflect the true investable TAM.

And even within that group, ~5.5K are already controlled by chains with 10 or more locations, leaving only about 1.5K true independent operators that PE firms can realistically pursue.

While it looks like PE holds a very small percentage of the total market, PE already owns over 60% of the most investable market.

Mitigants: Based on our discussion with a current operator, investor groups are testing more of smaller format models appropriate for lower density locations. These new formats could expand the investable TAM.

2. Limitations of Retail Business
The unit economics of subscription model and four-wall profitability drove up valuations to reach ~20x at peak. Mister Car Wash is a great example of the model working very well, until they tapped out the limitations of a physical, location-based business model.

In 2014, Leonard Green & Partners (LGP) bought Mister Car Wash, the largest operator in the U.S., for roughly $400-500M. LGP scaled the business aggressively via bolt-ons, pushed memberships, and built deep regional density. LGP took MCW public in 2021, at a ~$6B valuation.

Today, MCW runs a solid operation: ~77% of revenues from subscriptions, plus 33% EBITDA margins.

Despite this, it now trades at around ~66% below its IPO debut price. 

Why? Because there’s an inherent ceiling in retail businesses due to physical limitations—despite some comparisons to software models, car washes are not infinitely scalable.

Mister Car Wash’s S-1 quietly acknowledged the ceiling embedded in the model. In its most established markets, membership penetration had already climbed to 60-70% of wash sales by 2021. Average members per site were compounding at ~24% annually, but the charts show the natural inflection point: once penetration crosses ~60%, the slope of incremental adoption flattens.                                                

This limitation led to same-store sales growth decelerating from 19% at IPO to 3% today.

Mitigants: Smaller operators continue to see organic growth opportunities. For the largest players like MCW, they may ultimately become the “consolidator of consolidators” in 2026 and beyond.

The next decade of private-equity car-wash roll-ups will likely look meaningfully different.

Ultimately, car washes are neither a guaranteed gold mine nor an inevitable trap. They’re a nuanced operating category with real potential, just no longer a pure financial engineering trade.

When an industry built on soap and water starts trading at SaaS multiples, it’s usually a sign the rinse cycle is almost done. But cycles reset, and this won’t be the last wash.

Editor’s Note: The following is a synthesized, written Q&A based on detailed notes from a conversation with Dave Zook, founder and CEO of The Real Asset Investor (“TRAI”), an investment group behind Tommy’s Express franchisee locations. Responses have been edited for clarity and reflect the substance of the discussion, not verbatim quotes.

RTC: When you originally underwrote the investment, what were you focused on in the space? What assumptions really mattered?

TRAI:  We recognized that private equity was very interested in a subscription-based model with income that is sticky and driven by habit formation. Think about habits. Someone goes grocery shopping every Monday morning around 8:30. If there were a Tommy’s right there, washing the car would become part of that routine. That’s exactly what we’re doing: creating habits that repeat weekly. We built this business intentionally to be attractive to private equity, while still wanting it to be a great asset even if we held it for 10 years or longer.

RTC: What key metrics are you focused on every Monday morning?

TRAI: You have to deliver a great experience: clean sites, quality washes, and speed. If you do that, subscription and retail revenue goes up. At the end of the day, these businesses trade on income. We focus on building recurring revenue, taking monthly subscribers from 2K to ultimately 4K paying members per site. 

Retail washes have higher per-wash margins, but they’re volatile. When it rains, retail volume drops. With subscriptions, we still get paid regardless of weather. That stability is critical. We spend a lot of time on marketing and seasonal promotions to attract and retain subscribers. The goal is to make the subscription so sticky that canceling feels like breaking a habit.

RTC: How do you think about the split between subscription and retail revenue? What’s healthy?

TRAI: We target roughly 55% subscription and 45% retail split. If you’re all subscription and no retail, you miss out on retail margin. If you’re all retail, revenue becomes unpredictable. It’s a balancing act. Pricing matters a lot. If subscriptions climb above ~55% of revenue, you can raise subscription prices to drive some customers to retail and preserve margins. If the subscription base is closer to 35-40%, you lower pricing so that if you’re washing your car twice a month, subscribing becomes the obvious choice. There’s no one-size-fits-all approach. You can’t go to Nashville or Nebraska and expect the same results. You have to be tuned into the local market.

RTC: What does good subscription retention look like today, especially with more competition?

TRAI:  >80% retention is great, but it really depends on the market and the level of saturation. If I’m in San Antonio with only 1 location, retention will be much lower than if I have 8 locations across the city. When you can be near where people live, work, go to the gym, and shop, retention is much higher. You want to be at the intersection of “main street” and “main street”.

RTC: How important is geographic density when deciding where to open new locations?

TRAI:  You need to be where people are and where they are already going. You want to be in the retail section of town. You want to make it easy for customers to swing by your wash.

At Tommy’s, you don’t sit in line for 20 minutes. It’s built for speed, efficiency, and quality (the home of the 2 to 3 minute wash). This does two things: i) it doesn’t take much time for the consumer and ii) it prevents long lines from forming because people aren’t waiting just to get on the belt. At peak times, you can wash around 200-300 cars per hour, effectively getting “a wash and a half” every time you go through Tommy’s, without sacrificing wash quality even when the track speed is increased.

RTC: Can you walk us through the typical investment required?

TRAI: There are several different sizes and models of Tommy’s car washes, typically with 90-, 110-, and 130-ft tunnels, and they’ve recently introduced a much smaller model. Historically, Tommy’s has been built on speed and volume, which is key. But when you’re investing around $6M per site (excl. real estate), you need high traffic volumes and metro locations to make the numbers work. 

The newer smaller-format model costs closer to $3-4M and is designed for smaller towns with lower traffic counts, significantly expanding the addressable market. Average locations generate ~$1.5-2.0M in revenue, while top-performing sites can exceed $4M. Real estate costs typically range from $1-2.5M per 1-1.5 acre site. Location quality matters a lot. The real estate will serve you for the rest of the time you have the car wash, and being easy to get to is a big deal. Larger model generally require ~25K daily traffic, while the newer, smaller models can make the numbers work with 8K-12K daily traffic.

[RTC note: traffic stats above reflect number of cars that pass by the car wash, which is different from wash counts stated in other parts of the post.]

RTC: How do you think about owning versus leasing the real estate?

TRAI:  We prefer to own, but it depends. Ownership allows us to build equity and capture appreciation as the business performs well. You are still paying either way (rent or principal plus interest). That said, we will lease if the location is exceptional and ownership isn’t possible. From a buyer’s perspective, long-term leases can still be attractive as long as EBITDA is strong.

RTC: What margins do you target?

TRAI: EBITDA margins typically range from 40-58%. If we’re in the 45-50% range, we’re very happy.

RTC: Since your investment, how have competitive dynamics and site selection criteria changed?

TRAI:  Losing business to another major car wash doesn’t keep us up at night. What worries us is someone building a similar-quality tunnel wash in a better location. Convenience often beats marginal differences in quality. A soccer mom with a minivan will choose what’s easiest. That’s why site selection is everything. Being out-located can be a real problem, which is why we spend so much time running locations through different models and getting corporate approval on rooftops, traffic patterns, and site dynamics.

RTC: What surprised you most after capital was deployed?

TRAI:  We studied this model carefully before investing. What stood out was how sticky the membership becomes when you deliver value and build a habit for the consumer.

RTC: How do you set pricing to reach the optimal subscriber-to-retail mix?

TRAI: It’s highly geography dependent. We do a lot of modeling on that front. A premium wash subscription in a small town in Kansas might cost around $13, while the same wash outside Washington, DC could be closer to $30.

RTC: How do you think about marketing spend and payback?

TRAI: Marketing spend is much higher on the front end. You could easily spend more than 15% of revenue initially, especially when offering free washes on opening days as part of the launch. This is closer to 3-5% once stabilized. Early campaigns include free washes, promotions, and heavy local advertising. Payback improves materially once the site reaches steady-state membership levels.

RTC: Looking ahead, what do you see happening in the industry?

TRAI: Consolidation. The industry is extremely fragmented. Over time, a smaller number of large players will own a much larger share, similar to what happened with the fast food industry. Public operators with access to capital will drive that consolidation. We expect significant M&A over the next five years.

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