National Petroleum News (NPN) has been the independent voice of the petroleum industry since 1909 as the opposition to Rockefeller’s Standard Oil. So, motor fuels marketing and retail is not just a sideline for us, it’s our core competency.
Issue link: http://read.dmtmag.com/i/27063
OPERATIONSRETAIL BY LAURAGLASS AND MARKWARD, SR. Getting credit for buying and installing this profit center equipment FINANCING YOUR CAR WASH R EASONS FOR BUILDING A CAR WASH ARE still compelling.Margins on fuel sales remain low and, if you’ve got a suitable site, a car wash can be a productive profit center.What’s changed in recent years, however, is the availability of credit with which to finance the equipment and installation. Where can you get half a million dollars to build a new full-tunnel car wash, or $150,000 to replace or upgrade an existing facility? Today, most car wash equipment manufacturers rely on third parties to finance would-be operators. In turn, these third-party lenders have been formu- lating standards and procedures to meet the needs of car wash operators and the challenges of tight credit. “Car wash portfolios as a whole performed not as well as other segments” during the recent down economy, reports managing director Chris Santy of Atlanta-based Patriot Capital Corporation. “Because petroleum marketers viewed car washes as nonessential equipment, they were more likely to pay for gas pumps when things got hard. So as the lender, we experienced higher delinquency.” Then, too, the sky-high fuel prices of 2008 illustrate another risk for car wash equipment lenders. “When fuel prices got out of control, it got harder for petroleum retailers to convince cus- tomers to buy a car wash after they just spent $80 to fill up the tank,” relates Santy. So when high fuel prices or a down economy cut into car wash prof- its, operators are more likely to get behind on their loan payments. The good news is that “by June 2010 we started to see light through the economic clouds,” says Santy, “and by the beginning of the fourth quarter things started to get much more reasonable.We’re still not in the days of 2005-2007. But credit isn’t as difficult as it was early last year.” That opinion is seconded by principal Michael Saei of Los Angeles-based First Financial Capital, 22 MARCH 2011 “The current credit market for the car wash indus- try is certainly less than perfect and has been for the past several years, but it is much better than at the peak of the financial crisis.” One challenge in the availability of credit, Saei notes, is that “many regional and community banks were lenders to the car wash industry and many of those institutions struggled over the past couple of years with a number failing.” On the other hand, he sees a hopeful sign in that “over the past six months the stronger institutions have been coming back into the market, though they’re more selective with their borrowers and more conservative on terms.” Moreover, loans for car washes have always drawn a certain amount of skepticism from bankers. “These are special-purpose properties,” Saei explains, “so as assets they’re harder to manage and sell than a typical real estate investment—say, an apartment building—in the event of a foreclo- sure. Also, since car wash equipment is moveable and fungible, a troubled operator could disassem- ble the equipment leave the foreclosing bank only the land and an empty box.” Because full-service car washes are historically cash businesses, the valuations that many small operators put on the enterprise may not be sup- ported by the financial statements and tax returns provided. “Such cases,” Saei continues, “are incredibly difficult for a regulated lender, like a bank, to assess.” From the lender’s view, the inherent seasonality of the car wash adds another risk factor, says Saei. Even a car wash in California, where sunny weath- er can bring high car wash traffic for eight or nine months out of the year, might have the misfortune of starting up during an unusually wet winter. “We’ve seen new car washes fail, for example, when they opened during the El Niño because they didn’t have cash reserves to make it through a tough sea- son,” he says. NPN Magazine www.npnweb.com