Question: Drew Ebel was contemplating buying an automated
Drew Ebel was contemplating buying an automated car wash franchise as a family business. His wife Caroline, their two kids, Jasmine and Luke, and their dog, Lilly, were a close-knit family that were tired of the bureaucracy of corporate and government jobs. The dual- career family had saved $200,000 in cash. Drew, who was 62, could cash in some of his retirement accounts to free up another $200,000. These monies would be used for a down payment.
Drew and Caroline needed to develop a business plan stating the strategy and mission of their business, evaluate the economics of the business using break-even analysis, select a site and buy the property, and start up the business with an idea of providing superior customer service—a premium car washing experience using automation. Drew had a Bachelor’s Degree in Mechanical Engineering and Caroline earned a Bachelor’s Degree in Accounting. Drew and Caroline collected information on the cost of the franchise shown in Case Exhibit 4.1.
Car Wash Industry
In 1914, the first car washing assembly line was opened in Detroit, Michigan. People pushed Model-T cars through the wash stations in a circular route. By 1928, a people- powered chain conveyor pulled cars through a straight (serial) assembly line. The vehicles got dirty, especially on the roads of the era. By 1932, there were 32 carwashes in the United States. In the 1930s, car wash owners began to ask manufacturers if they could build automated brushes and other electro-mechanical car washing devices. In 1946, the first semiautomatic car wash system was developed with an overhead sprinkler system, three sets of manually operated brushes, and a conveyer powered by an electric motor pulling cars along a straight line. By the 1950s, automated car washing systems were developed by several manufacturers. Today, five people using a robotic car washing system do the work of over twenty people using 1950s technology. Once robots were able to vacuum and clean the interior of nonstandard vehicles and wipe down the exterior with no damage, one person could operate the entire car wash operation from a single computer console.
Available Information Collected to Date
Investment costs are shown in Exhibit 4.7. Variable costs are estimated to be $15.16 per vehicle per year. Variable costs included in this estimate account for four full-time employees plus the manager, environmental fees and disposal, office expense, insurance, and some accounting, attorney, routine maintenance, and advertising expenses. We assume that the car wash operates 300 days per year. The average price of a wash is $22 per car. Drew and Caro- line had good estimates of price and variable costs, but were puzzled as to what was a good fixed cost estimate. Detailing vehicles, dent repair, and windshield repair are a separate on-site department. These services generate an estimated net profit of $130,000 per year.
The key factor in a successful car wash business is location. This includes site location, traffic density and patterns, and the demographics of the surrounding area. Based on ZIP code analysis, one promising location showed a high net worth for residents in the area. For that area, they estimated demand to be between 10,000 and 14,000 car washes per year. The closest full-service car wash business to this new location was 5.2 miles away.
Drew and Caroline wondered what other characteristics make for a successful car wash service. Some car wash conveyors are designed with a capacity to process up to 100 cars per hour, but most car wash conveyors operated in the 30 cars per hour or less range. The speed of the conveyor can be changed in most car wash systems depending on demand, weather, and degree of dirt on vehicles. Keeping the robots operating is a struggle, and all car wash owners have stories of losing a high demand day of sales because of machine breakdowns and parts shortages.
Case Questions for Discussion:
Drew and Caroline had many issues they needed to address in their business plan. They also planned to visit automated conveyer car wash sites and talk to owners. Some of the questions on their mind include:
1. How might the strategy, mission, competitive priori- ties, and customer benefit package of this business affect their technology decisions?
2. What issues and problems should you anticipate with managing this business, particularly with respect to technology? What role does operations play in successfully handling these issues and problems?
3. What does a break-even analysis tell you about this business venture? What if they could reduce variable cost and/or increase the average price per wash?
4. Should Drew and Caroline go into this business?
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