Automotive Aftermarket Investment Banking Group
Stephen C. Lynch, CFA, CPA, William J. O’Flaherty, David L. Corbett, CFA, Kyle B. Tipping, CFA

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Car Wash Industry Update

As has often been reported, the car wash industry has grown substantially and attracted significant interest over the last decade, particularly from private equity firms and other financial sponsors. This led to a series of mergers and acquisitions (M&A), including a heightened period of activity over the last five years, as existing operators pursued growth and new entrants sought platforms in the industry.

As illustrated in the chart below, M&A activity in terms of transaction counts peaked in 2022 with 90 transactions involving two sites or more. During this same period, the average number of sites per transaction simultaneously reached a low point as small-to-mid-sized car wash chains chose to sell or partner with a financial sponsor and as existing operators added density to their operations.

In addition to the reduced M&A activity compared to 2022, several events in early 2025 have prompted those who follow the industry to look cautiously toward the future. The Zips Express Chapter 11 bankruptcy case filed in early February 2025, along with the sale of Driven Brand’s U.S. Take 5 car wash business to Whistle Express announced in late February 2025, highlighted what many who follow the industry have long been worried about – operator health, leverage profiles, and potential liquidity concerns.

Given the lofty valuations experienced within the industry during the last five years and elevated interest rates since 2022, are more of these situations expected to occur?

The answer to that question largely remains to be seen, but the current conditions within the car wash industry appear to potentially support increased M&A activity levels.

Low Overall Industry Consolidation
The car wash industry remains highly fragmented, providing ample opportunity for future consolidation and allowing operators to achieve additional scale to create overhead synergies and improve buying power. Currently, the top 10 car wash operators control only 4.5% of the total car washes in the United States while, if this list is expanded, the top 50 operators control only 7.8% of all outlets1. Despite the wave of consolidation that has occurred within the car wash industry during this time period, market share held by top operators has grown only moderately since 2020 when the top 10 car wash operators had a 2.2% outlet market share while the top 50 operators held a 3.8% market share1. In comparison, highly-consolidated industries like home improvement stores, warehouse clubs, and cruise lines are highly concentrated with just four companies controlling over 94% of the industry outlets (2).

M&A Transaction Activity (Number of transactions per year)3
Average Transaction Size (Number of locations per transaction)3

(1) Source: Professional Carwashing & Detailing (carwash.com); market share based on a total car wash outlet count of 62,750 per the International Carwash Association
(2) Source: Robert Atkinson, “No, Monopoly Has Not Grown,” Information Technology and Innovation Foundation, June 2021
(3) Source(s): S&P Capital IQ, Pitchbook, Company Press Releases, Internal Matrix Tracking; includes transactions with two or more locations

Potential Financial Sponsor Exits
Due to the previously mentioned period of intense M&A activity and investment, many sponsor-backed platforms were formed during a brief period of time and are now several years into their respective holding periods. While multiple factors are involved, private equity firms typically hold investments between four and seven years. Within the next 12 months, almost 30 sponsor-backed platforms representing more than 2,100 car wash locations will have been held by their financial sponsors for four years or longer. These sponsors are likely considering their options for returning capital to investors or exploring other alternatives, such as continuation vehicles.

Latent Desire for Liquidity
The reasons for such may be different than sponsor-driven activity, but there may be an increase in transactions involving founder-led or closely-held businesses as those who delayed liquidity events reenter the M&A market. Given the pullback in overall M&A activity and valuations since the peak in 2022, operators might have postponed the sale of their businesses hoping for the market to return to its previous level of exuberance. As market conditions stabilize, the bid-ask spread between buyer and seller valuation expectations may narrow, leading to more M&A activity as these liquidity objectives are met.

Industry Headwinds
In addition to or potentially magnifying the above factors, several challenges facing the industry may motivate some operators to exit. While not exhaustive, this could include: industry oversaturation in certain markets, interest rate increases, tariff impacts, materially underperforming pro forma estimates, expensive leases, decline in consumer discretionary income, etc.

Entering 2025, many feel the car wash industry faces some level of uncertainty, but it remains dynamic and resilient as displayed by the numerous transformations the industry has successfully undergone since its inception in 1914. The industry is led by many exceptional innovators who are willing to take risks and try new ideas, and we believe the current environment may provide opportunities for strong operators to continue growing their businesses in meaningful ways.

(1) Source: Professional Carwashing & Detailing (carwash.com); market share based on a total car wash outlet count of 62,750 per the International Carwash Association
(2) Whistle Express completed the acquisition of Driven Brand’s U.S. Take 5 car wash business on April 10, 2025
(3) Pending  completion of Chapter 11 bankruptcy filing made in February 2025

 

Key Industry Data

Car Wash Trends Continue to Display Strong Fundamentals

The car wash industry continued to display strong, consistent growth through the end of 2024 and into early 2025. Same-store, year-over-year sales for washes open at least one year has remained above 7.0% for the last 11 quarters and increased to 12.4% during the first quarter of 2025. This recent increase was driven by continued membership growth with positive same-store sales growth for single-wash retail customers that was supported by weather and strong holiday marketing activity in 2024.

Conversion rates of single-wash customers to monthly memberships across all sites remains in the high single-digits, but based on data produced by Rinsed, there is a large deviation across the industry. Although likely not a surprise, sites with large membership bases (3,000+ members) convert almost five times as many customers to paid memberships than sites with lower memberships (1,000 members or less). While this distinction has been pervasive over time, car wash operators as a whole have generally improved their conversion rates over the last several quarters as they continue to refine their operations and as more customers become aware of modern membership-based car wash programs, particularly express exterior-only tunnels. Improvement of conversation rates is necessary to continue driving top-line performance as voluntary and credit card-driven churn (membership terminations) has consistently remained around 7.0%

Altogether, average car wash memberships per site continue to reach new highs across the industry. For sites tracked by Rinsed during the second quarter of 2024, the median number of monthly members per site was 2,875 while car washes in the top decile had 6,697 members or more on average. Halfway through 2024, both of these figures reflect strong growth as they grew 8.5% and 8.6%, respectively, year-over-year.

(1) Source: Rinsed Car Wash Industry Report, which includes data aggregated from over 2,000 car washes
(2) Locations open for 12 months or longer
(3) Locations open for 30 months or longer

Trends We’re Watching – Automotive Aftermarket Sector

American automobile travel remained robust throughout 2024. Overall vehicle miles traveled (VMT) increased 0.45% in 2024. Furthermore, several months posted strong gains when compared to the same period from the prior year and, other than January 2024, there were no significant declines from the prior year period.

Publicly traded multi-site operators mostly posted positive results on a same-store sales basis. Valvoline, O’Reilly, and AutoZone continue to consistently report quarterly same-store sales growth. Businesses that rely more heavily on discretionary spending, such as Mister Car Wash and Driven Brands also posted sales growth, albeit at lower rates than in past years. Monro was the major exception to the growth trend, as it continued to struggle to replicate its historical sales numbers.

Publicly traded multi-site operators continued to pursue unit growth in 2024. The notable exceptions were Monro, which continues to focus on optimizing its existing store base, and Advance Auto Parts, which saw a ~6% contraction in its unit count during Q3 2024 associated with the sale of its 320 Worldpac branches.

(1) Source: S&P Capital IQ
(2) Source: Company Filings

Wage Rates; Motor Vehicle Parts & Tire Costs

Wage rates across the Automotive Aftermarket continued to extend COVID-era trends and generally increase into early 2025. With an average year-over-year increase of 7.3% through January 2025, hourly wages at tire dealers have experienced the most growth out of the three categories presented below and have paced well-above the 4.0% increase in nationwide hourly wage rates across all industries and positions during this same period.

Wages at general automotive maintenance and repair facilities increased 3.0% on a year-over-year basis, but lagged the increase in broad, nationwide hourly wages noted above. However, rather than increasing like the other two categories, wages at auto parts stores, which have recently been modulating, decreased 4.1% year-over-year.

As measured by the Producer Price Index (PPI), prices for motor vehicle parts, tires, and other related materials remained at elevated yet stable levels through February 2025. However, this data does not yet capture the impact of the numerous tariffs the Trump administration has recently announced that are likely to be significant across the supply chain supporting the Automotive Aftermarket.

As tariffs applying to different products and/or countries were announced through multiple Executive Orders, importers into the United States are finding it difficult to quantify the impact these tariffs will have on the landed cost of their products. The Trump administration is further complicating the matter as it is actively engaging with trading partners of the United States, particularly China, freezing or delaying previously announced tariffs, and instituting new tariffs seemingly daily.

What is clear, however, is that a great amount of risk and uncertainty surrounding input costs and inflation levels will remain in the near-term until the Trump administration’s trade agenda stabilizes.

(1) Source: Autocare Association
(2) Source: U.S. Bureau of Labor Statistics

Vehicle Affordability & Replacement Factors

According to data reported by Cox Automotive, the average transaction price (ATP) for new vehicles in February 2025 was $48,039, which is flat compared to the prior year. Further, average incentive packages on new vehicles increased to 7.1% of ATP in February 2025 compared to 5.9% in February 2024.

During this same time period, used vehicle inventories have declined slightly while prices for these vehicles have remained stable year-over-year.

Interest rates for auto loans have decreased from multi-year highs, which peaked during the summer of 2024 at 8.7% when measured across loans on new vehicles with a 48-month term. By decreasing almost 100 bps from these highs to 7.7%, this recent decline in interest rates has provided much-needed relief for consumers considering purchasing a vehicle.

Despite some of this recent good news in terms of vehicle prices and interest rates, recent tariffs announced by the Trump administration will place significant upward pricing pressure on new vehicle prices. Indirectly, these tariffs will likely also impact used vehicle prices as consumers weigh various vehicle replacement options.

(1) Source: Cox Automotive
(2) Source: Board of Governors of the Federal Reserve System (US)

 

Publicly Traded Company Performance

Equity Performance

After posting strong returns in 2023 and 2024, public equity markets began 2025 on a weaker note. Uncertainty around the Trump administration’s tariff policy introduced significant volatility and caused a pullback in the broader market during Q1 of 2025. In the 12-month period ended March 31, 2025, the S&P500 grew by 8.5%.

The automotive industry (-10.7%) lagged the S&P500 significantly during the same period. Slowing consumer demand continues to create headwinds while the automotive industry has also been a focal point of the Trump administration’s tariff policy.

O’Reilly Auto Parts (+26.7%) and Dorman Products (+23.6%) posted the strongest performance over the past year. O’Reilly Auto Parts, AutoZone, and Axalta Coating Systems each outperformed the S&P500 over the past 36 months.

By contrast, more than half the companies in the Automotive Aftermarket index suffered a pullback of more than 20% over the past year as tariffs and economic uncertainty impacted results across the industry.

Looking ahead, the Automotive Aftermarket looks to recover from a tumultuous few years in terms of overall equity performance for these publicly traded companies.

(1) Source: S&P Capital IQ
(2) As of 3/31/2025

Public Company Valuations

On an enterprise value (EV) to EBITDA basis (EV/EBITDA), the overall Automotive Aftermarket sector tracked by Matrix has declined moderately over the last two years. Much of this decline occurred during 2023 and was due in large part to a return to historical norms following the elevated valuations experienced during the pandemic. Multiples have largely stabilized over the last 12 months but remain below the levels seen immediately following the pandemic.

It is important to note that the figures shown above are as of March 31, 2025. At the beginning of April, the public markets entered a period of significant volatility as the Trump administration announced numerous tariffs on goods imported into the United States. As a result, financial markets around the world experienced extremely high volatility and suffered sharp declines.

While markets calmed following the news that the implementation of most tariffs would be delayed by 90 days, volatility may return upon the expiration of this period.

Looking ahead, the Automotive Aftermarket index will face a challenging macroeconomic and geopolitical environment. However, an aging vehicle fleet, combined with the non-discretionary nature of these businesses, will help to support their earnings and valuations.

(1) Source: S&P Capital IQ

(1) Source: S&P Capital IQ
(2) Note: unless noted otherwise, data as of 3/31/2025

(1) Source: S&P Capital IQ
(2) Note: unless noted otherwise, data as of 3/31/2025

(1) Excludes multi-unit service providers with less than five locations
(2) Source(s): S&P Capital IQ, Pitchbook, Company Press Releases, Internal Matrix Tracking
(3) Date transaction was announced; closing expected to occur during Q2 2025
(4) Date transaction was announced; closing expected in 2025

What We’re Reading

Tariffs Could Push Up New-Vehicle Prices, Testing Limits of Affordability
April 12, 2025 – Many of the lowest-priced vehicles sold in the U.S. are assembled in other countries, making them particularly vulnerable to new tariffs of 25 percent on imported autos…Analysts have warned that President Donald Trump’s auto tariffs — which remained in place even after he paused reciprocal duties on most nations until July — could raise new-vehicle prices by thousands of dollars if automakers pass on their added costs to consumers…

Trump Tariffs Will Apply to Tires
April 3, 2025 – Tires are one of the many automotive components that will be impacted by new tariffs announced by President Donald Trump…“The list covers a wide range of parts for passenger vehicles (sedans, sport utility vehicles, crossover utility vehicles, minivans, and cargo vans) and light trucks,” including automotive tires and tubes. A wide range of chassis and drivetrain parts, engine parts, electrical and electric components and other products will also be subject to tariffs

Auto Industry Braces for Impact: 25% Tariffs on Imported Vehicles Set to Disrupt Market
March 28, 2025 – Aftermarket demand for tires in the U.S. grew across each category during 2024, after hitting a plateau the year before. Demand for medium truck/bus replacement tires led the way, increasing 12.5% to 23.4 million units, according to data from the U.S. Tire Manufacturers Association (USTMA). Shipments of light truck tires followed with 7% growth to 36.7 million units, while passenger tire shipments went up 1.3% to 222 million units…

U.S. Consumer Demand for Tires Grew in 2024
February 24, 2025 – Aftermarket demand for tires in the U.S. grew across each category during 2024, after hitting a plateau the year before. Demand for medium truck/bus replacement tires led the way, increasing 12.5% to 23.4 million units, according to data from the U.S. Tire Manufacturers Association (USTMA). Shipments of light truck tires followed with 7% growth to 36.7 million units, while passenger tire shipments went up 1.3% to 222 million units…

 

Disclaimer

The contents of this publication are presented for informational purposes only by Matrix Capital Markets Group, Inc. and MCMG Capital Advisors, Inc. (“Matrix”), and nothing contained herein is an offer to sell or a solicitation to purchase any of the securities discussed. While Matrix believes the information presented in this publication is accurate, this publication is provided “AS IS” and without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranty of merchantability, fitness for a particular purpose, or non‐infringement. Matrix assumes no responsibility for errors or omissions in this presentation or other documents which may be contained in, referenced, or linked to this publication. Any recipient of this publication is expressly responsible to seek out its own professional advice with respect to the information contained herein.