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The truth about the labor problem

October 11, 2010
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According to research by Professional Carwashing & Detailing magazine, the cost of online labor per vehicle washed for full-service carwashes has increased double digits in the past five years, and is now between $4 and $5 for many full-serves.

For full-service washes that have been able to control labor percentages through efficient scheduling, automation and high ticket averages, the cost can be absorbed.

However, for many full-service carwashes that operate just above the brink of profitability, the continuing escalation of labor costs is a real threat to business.

In fact, if overall online labor costs increase another 10 percent over the next five years (an approximate $25,000 increase), the average full-serve would need to wash more than 2,000 extra vehicles at $12 per car just to cover the additional labor expense.

This excludes insurance costs, which have increased as much as 30 percent nationally over the past five years for full-serves, as some carriers get increasingly squeamish on the full-serve market.

Experts say the bad news is that there is little good news. Labor costs should continue to escalate for the foreseeable future, fueled by proposed minimum wage increases, teen apathy toward the carwash job market, and the questionable chances of a bill that could help Southwestern full-serves.

Add to that the increasing uneasiness that new investors have about labor, and you have the recipe for a format conversion that could seriously impact thousands of full-serves nationwide.

A tough recipe

Bill Consolo, owner of Chief's Auto Wash & Chief's Mfg., Cleveland, had an experience very similar to that faced by many full-serves across the country.

When Consolo was operating with the full-service model he was paying his line workers $7 an hour — $1.85 above minimum wage in his area — just to attract decent labor, and he was washing only about 36,000 cars a year. Labor was 50 percent of his gross.

"In short, it was a recipe for disaster," Consolo said.

If Consolo had continued operating as a full-serve in his market, labor was probably going to get much more expensive.

One issue that is going to drive labor costs is the possibility of a minimum wage increase. Although the Bush Administration is extremely business sensitive and likely to fight any large-scale increases (some Democrats have been pushing for a minimum wage of up to $7.50 an hour), many states have been enacting their own, higher minimum wages.

In Connecticut, for example, the minimum wage is more than $7 an hour, and a Massachusetts legislator has been pushing for a wage in excess of $8 an hour.

Sam Olivito, executive director of the Western Carwash Association (WCA), which oversees a major full-service region of the country, points out that the majority of Western carwashes have to pay well above the minimum wage, despite a more abundant pool of unskilled labor than many markets enjoy.

However, when a minimum wage increase is enacted, there often is a ripple effect where workers already being paid more than the minimum wage have to be given raises to maintain a buffer between their wage and the new minimum wage.

According to PC&D's 2005 Automatic Carwash Benchmarking Report, the average starting wage for a full-service carwash worker was $7.06 per hour in 2004.

If the minimum wage was to increase to $7 an hour, carwashes may need to pay between $8 and $9 an hour to attract good employees.

If there is not a corresponding increase in volume or gross revenue per car, that increase of 14 percent to 28 percent in online labor costs has to be eaten, or the carwash has to downsize by scheduling fewer workers per shift.

The labor drama

According to carwash consultant Robert Roman, president of Clearwater, FL-based RJR Enterprises, new investors are changing the investment landscape of carwashing as labor costs and other headaches lead them to adopt operating platforms that require as few employees as possible.

Many equipment manufacturers say they are now building more express wa-shes than any other type of wash format.

"There appears to be a greater number of portfolio investors coming into the market who don't want to contend with the cost or drama that is involved with providing value-added services like interior cleaning or express detailing," Roman said.

The 'dramas' that come with the labor territory are familiar to all carwashing vets:

  • Hiring and training;
  • Motivation and retention;
  • Tardiness or absenteeism;
  • Personal problems;
  • Leaving early; and
  • Not wanting to work.

Unfortunately, these are problems that many carwash experts agree are not going to get better. These problems are inherent to unskilled labor and, making the problem worse, many unskilled workers do not consider carwashes attractive places of employment.

Tough sell for teens

Most of the labor positions at a full-service carwash are boring and full of repetitive motion — these are not the kind of jobs that most of today's kids would find very appealing, Roman said.

In addition, most carwashes do not have environmentally controlled workspaces — most employees have to work outside in the cold, heat and direct sunlight, laboring all day for a relatively low wage.

Meanwhile, grocery stores, fast-food restaurants and other employers are competing hard for the same workers, offering good wages and sometimes better conditions.

"Would you like to spend all day bent over vacuuming out the insides of cars or would you rather work someplace that offers air conditioning and heat, greater mobility and better pay and benefits?" Roman asked.

The need to staff their full-service carwashes is often dire enough that carwash operators will cut corners. It is a truth Olivito has had to deal with personally as head of the WCA.

Western carwashes have been under the labor microscope since the 2003 airing of Dateline NBC's "The Dirty Side of Car Washing," which focused on how some full-service carwashes exploit immigrant labor (legal and otherwise) to staff their facilities.

The report and the underlying problems it addressed have led to more serious discussion of reducing labor at existing Western full-serves.

"We've had sessions regarding Flex-Serve, (express) exterior washes and finding ways to reduce labor costs for wash owners," Olivito said, adding that WCA will hold a session at its next convention and trade show in October 2005 that will deal specifically with this issue.

"It takes a tremendous amount of people to provide the services that the public is requiring today and there are operators who are thinking seriously about going into the kind of business that doesn't require that kind of labor force."

Guest Worker? Don't bet on it

Some carwash experts argue that a guest worker program — which would allow foreigners to legally work in the United States — would jointly solve the problems of immigrant exploitation and the dwindling unskilled labor pool.

President Bush supports a guest worker program and had originally hoped to have one active by the end of the summer. The program would provide a limited window for foreign workers to enter the US and fill lower wage and/or seasonal positions that many US workers don't want for the wage being offered.

The guest worker program would grant amnesty to foreign workers for six years while they are allowed to work in the US by filling the jobs that Bush is quoted as saying "Americans will not do."

A guest worker program could be a real boon for Western and Southwest full-serves, where there is already a large immigrant workforce. But the idea has become a political hot potato, opposed by Democrats and some Republicans.

Among the concerns about the guest worker program:

Although the Department of Labor (DOL) claims the program is not designed to take job opportunities from Americans, many are not buying it.

How could the government guarantee Americans were getting first crack at these jobs? And if immigrants will work for minimum wage and without benefits, why would a company hire an American citizen instead?

Workers could still be exploited. Having too large a pool of potential carwash employees may not motivate business owners to raise wages or improve working conditions. Critics say immigrants could be exploited under the program.

Though wash owners and other businesses employing guest workers would be required to verify the information and paperwork that proves these workers are legal, it cannot be guaranteed or controlled using DOL's current technology.

Critics say it would be impossible to monitor or control the number of guest workers entering the country.

Without adequate controls, some fear that terrorists could use the guest worker program to enter the United States. Anything that loosens America's borders in a post-September 11 world is politically thorny.

"According to Business Week there are already 11 million illegal aliens in the country out of a population of about 280 to 290 million people," Roman said. "That's about four percent of our population — and that number is growing."

Guest worker: What are the chances?

"I think it's about a 50/50 chance that the guest worker program will pass," Mark Thorsby, executive director of the International Carwash Association, said. "I think Bush has a tough fight ahead of him."

Consolo hopes that the program does pass, although he feels conflicted about it.

"The negative is that it rewards people for breaking our immigration laws, but whether we reward them or not, they are still coming," Consolo said.

As Consolo points out, when desperate carwash operators pay illegal aliens under the table, it puts no taxes into the system. If these workers were made legal and had rights, carwashes would need to increase wages and improve conditions.

It would also level the playing field, making it impossible for rogue carwash operators to exploit immigrant labor and use the savings to undercut competing carwashes who play by the rules.

Thorsby and Roman both agree that even if the guest worker program is enacted — and it faces a real uphill fight — it will not be a cure-all for full-service carwashes.

"I can see how this kind of a program can work and be beneficial for our economy," Thorsby said. "But I don't think that the impact on carwashing will be very great."

In the end, Thorsby said, full-serves in only a few states would be significantly impacted and, even then, there will still be stiff competition for guest workers.

"I do think that the industry moving towards flex-serve and express exterior is in an effort to cut down on labor costs," Thorsby said. "But I don't think that this guest worker program is going to alleviate that."

Is express inevitable?

A profitable full-service carwash should have labor costs somewhere between 30 to 35 percent of gross revenue plus another 5 to 6 percent to cover payroll taxes, Roman said.

However, many full-serve operators like Chief's Consolo have been in the position of sending more than 50 cents of every dollar they make right back out the door as labor expenses. There are two ways to lower the percentage: either increase revenue or decrease labor.

As far as increasing revenue, price increases are just not in the cards for many full-serves. Even as their labor expenses have ballooned over the past five years, many have kept their pricing relatively flat as they compete with low-cost in-bays and the proliferation of sub-$5 express exteriors.

The other way to boost revenue is by increasing volume. Many full-service carwashes are now realizing that by converting to Flex-Serve or express exterior (or at least offering an exterior option), they can increase overall revenue while also cutting labor.

The impact of the trend is unmistakable. Many of the country's largest carwash chains are currently operating discount express washes. On the manufacturing side, OEMs like Sonny's, Tamarac, FL, have seen a rush in business building express exteriors.

Simoniz, Bolton, CT, which makes an online tire shiner designed to replace at least one online worker per shift, now has more than 500 installations of the equipment.

Many full-service respondents to PC&D's 2005 Automatic Carwash Bench-marking Report had gross revenues per car lower than the basic wash price for a full-service wash, documenting the impact that the express option has had on the full-serve sector.

Consolo is just one express-conversion success story. Since converting to an express exterior in the late 90s, his labor costs have dropped to just 18 percent of his gross — he washed 95,000 cars last year and his labor costs were only $121,000.

Industry members and leaders alike feel that this surge in less labor-intensive models will also make the fewer workers employed at conveyorized washes happier — and easier to attract.