The Car Wash Bubble That Wasn't
- 5 hours ago
- 12 min read
Wall Street decided express car washes were the next overbuilt asset class. The loan tape says the correction had already happened, two years before anyone wrote it down.
Drive north on Mound Road through Warren, Michigan, and you will pass six express car washes inside a single mile. Warren has twenty-five of them altogether, plus sixty-nine gas stations, packed into thirty-five square miles of postwar industrial suburb. In May, the city council voted an eight-month moratorium on new ones. Councilman Jonathan Lafferty framed it as smart zoning rather than hostility to business, which is what officials always say, and in this case was probably true.
That same month, Leonard Green & Partners closed on Mister Car Wash at an enterprise value of $3.1 billion.
Both of those things are facts about the American car wash industry in 2026, and the gap between them is the whole story. For eighteen months the trade press and the general business press have run a single narrative: private equity poured money into express tunnels, built too many, and the reckoning arrived. The narrative has a founding document, the Chapter 11 filing of ZIPS Car Wash on February 5, 2025, in the Northern District of Texas, and it has the visual evidence everybody can see from the driver's seat. What it does not have is support in the credit data.
We went looking for that support in the only place where a decade and a half of small-business car wash lending is recorded loan by loan: the SBA's 7(a) and 504 loan-level files. The picture that comes back is not the one the headlines describe.
What the loan tape shows
Since fiscal 2010, Analytics.loan's analysis of SBA loan-level data identifies 4,227 7(a) loans to car wash operators totaling $5.26 billion, alongside 1,580 SBA 504 projects carrying $1.58 billion in debentures against roughly $4.03 billion of total project cost. Combined, that is about $6.83 billion of federally guaranteed credit across 5,807 loans, one of the larger single-NAICS concentrations in the 7(a) portfolio, and large enough that if the sector were failing, the failure would be legible.
It is not. Among resolved loans, those that have either paid in full or charged off, car washes charged off at 5.25 percent. The all-industry figure over the same window is 7.45 percent. Measured against approved dollars rather than loan counts, the gap widens: 0.62 percent for car washes against 1.50 percent across all industries.
Put plainly, a dollar lent to a car wash operator since 2010 has been less than half as likely to be written off as the average SBA dollar. The category that has spent the past year as the poster child for overbuilding is, on the government's own tape, one of the better-behaved corners of the 7(a) book.
Two caveats belong here, and belong high rather than buried. The first is that resolved-loan rates are a lagging measure by construction. The average distance from origination to charge-off in the 7(a) portfolio runs about four years, which means the 2021 and 2022 vintages, the peak-euphoria cohorts, the ones underwritten at the top of the multiple cycle, are still seasoning. Our current watch list shows 37 car wash loans in liquidation and 42 delinquent or past due. The 5.25 percent will drift upward. The question is whether it drifts past 7.45, and nothing in the current arrears data suggests it will.
The second caveat is that published default figures for this sector vary widely, and the variance is methodological rather than substantive. Analyses that stretch the window back to the early 1990s pull in legacy cohorts with structurally higher loss rates and produce a car wash number in the low teens, against an all-industry benchmark in the mid-teens. Different absolute numbers, same relative finding. Whatever window you choose, car washes come in under the baseline. Anyone comparing our figure to another published one should check the start year and the program mix before concluding that somebody is wrong.
The correction happened before the bankruptcy
Here is the part of the story that got lost. New express development did not peak in 2025 and then collapse. It peaked in 2022 and had already fallen by roughly forty percent before ZIPS ever reached a courthouse.
The International Carwash Association counted 943 new express openings in 2022. By 2025 the figure was around 550. Our modeling puts 2026 at 450 or below.
The lending data tells the same story from the capital side, and tells it earlier. Car wash 7(a) approvals peaked in fiscal 2021 at $676 million across 391 loans. By fiscal 2025 they had fallen to $272 million across 243 loans, a sixty percent decline in dollars. Average loan size retreated from $1.73 million to $1.12 million over the same span, which is what happens when lenders stop financing greenfield tunnels and start financing acquisitions of existing ones. Through the fiscal 2026 partial year the average is running $950,000.
Lenders tightened in 2022 and 2023. The bankruptcy came in 2025. The sequence matters, because it inverts the causal story that has been told about this industry. Credit did not react to the distress. Credit anticipated it, and by the time the distress was public the underwriting had already been reset for two full cycles.
What actually failed
The failures were real. They were also specific, and they were not about car washes.
ZIPS entered Chapter 11 with $653.9 million of funded debt and roughly $1 million of cash, according to the first-day declaration of chief transformation officer Kevin Nystrom. Its senior secured term loans had matured on December 31, 2024, five weeks before the filing. Annual cash interest expense had climbed to $93 million from $59 million as the 2022 and 2023 rate hikes worked through a floating-rate stack. Under its private equity owner the company had roughly doubled revenue, from $184 million to $345 million, added ninety-five locations, and taken on that $654 million of debt plus $300 million of preferred equity to do it.
None of those numbers describe a car wash problem. They describe a maturity wall meeting a rate shock. The company reorganized in eighty-four days, cut about $279 million of debt, rejected roughly forty-one leases, and sold its Orlando assets to El Car Wash for $58.5 million. The tunnels kept running. The capital structure did not survive; the operating asset did.
Driven Brands tells a version of the same story with better manners. It sold its roughly 380-site Take 5 Car Wash business to Whistle Express for $385 million in April 2025, $255 million cash, $130 million seller note, after taking an $851 million goodwill impairment on the segment. Chief executive Jonathan Fitzpatrick described it as deleveraging and refocusing on the oil change business. It was also an admission that the company had paid 2021 prices for a 2019 thesis.
Now set that against the operator that got it right. Mister Car Wash finished 2025 with $1.05 billion in net revenue, up six percent, across roughly 548 locations. Its Unlimited Wash Club passed 2.3 million members and accounted for seventy-nine percent of wash sales in the fourth quarter, up from seventy-five. Chief executive John Lai reported the company's tenth consecutive quarter of positive comparable-store sales, with monthly churn running around five percent. In February 2026 Leonard Green, already a two-thirds owner, took the company private at $7.00 a share, a twenty-nine percent premium to the ninety-day volume-weighted average. The deal closed May 19.
One operator levered into a rate cycle and lost the company. Another built a subscription base and got taken out at a premium. The variable is not the asset class.
Where the risk actually lives
None of this means the saturation concern is imaginary. It means it has been measured at the wrong altitude.
Saturation in this business is a submarket phenomenon, not a national one. The consultant Steve Gaudreau has made this argument more precisely than anyone, pointing to Colorado Springs, seventy-three conveyor washes, more than five hundred locations across all formats, in a metro of 750,000 people, as an overbuilt submarket inside a market that is not overbuilt. The distinction sounds academic until you are underwriting a specific pad on a specific corridor, at which point it is the entire question.
The municipalities have figured this out faster than the capital markets did. Cape Coral, Florida imposed a twelve-month moratorium in April 2024. Birmingham adopted one in March 2024 and extended it repeatedly, with the transportation department citing traffic generation and pedestrian conflict. Hesperia, California moved in February 2024 with nineteen existing washes on the ground. Hemet moved to bar new washes from its commercial and manufacturing zones outright. Perrysburg, Ohio ran a moratorium through 2025 and then voted 5-1 to end it early. Warren came in May 2026.
Mission, Texas is the most instructive of the group. Its 180-day moratorium in March 2026 cited water and drought rather than traffic, and it landed in the teeth of Texas House Bill 2559, effective September 2025, which sharply restricts municipal development moratoriums. Water is becoming the binding constraint faster than zoning is. An unreclaimed tunnel draws thirty to forty-five gallons a car. Reclaim systems cut that by half or more, and cost $55,000 to $70,000 installed. In the Colorado River basin and across much of the Southwest, that line item is migrating from optional to entitling.
The number that should worry operators
If there is a genuine structural problem in this industry, it is not oversupply. It is that the growth engine has nearly finished running.
The International Carwash Association puts professional wash adoption at seventy-nine percent of American drivers, against roughly half in the mid-1990s. The express model's entire expansion thesis rested on converting people who used to wash their cars in the driveway. That conversion is close to complete. From here, growth has to come out of somebody else's tunnel.
The operating data already reflects it. Operator benchmarking published by Rinsed showed non-member retail revenue down 11.9 percent year over year in the second quarter of 2025, while membership revenue held up. Mister Car Wash's own mix, seventy-nine percent subscription, is the same fact viewed from the top of the market. The walk-up customer is thinning out. The subscriber is not. That is a margin story and a valuation story, and it favors operators with dense route networks and functioning CRM over operators with good real estate and a card reader.
It also changes what a feasibility study has to prove. Ten years ago the question was whether a trade area had enough cars. Now it is whether it has enough cars that are not already committed to somebody else's monthly plan.
What the capital stack looks like in 2026
All-in development for an express exterior runs $4 million to $8 million including land, with a prime one-acre pad at $1.0 to $2.5 million and a 100- to 150-foot tunnel package at $1.0 to $1.5 million. Section 232 tariffs at fifty percent on steel and aluminum have pushed the shell, the vacuum canopy and the mechanical package meaningfully higher since 2024. Break-even for a leveraged new build sits at 120 to 180 cars a day, with a ramp of twenty-four to thirty-six months.
Financing has repriced accordingly. Prime stood at 6.75 percent entering 2026, putting variable 7(a) paper in the 9.5 to 11.75 percent range; 504 debenture-backed money prices roughly 5.5 to 6.5 percent fixed. SOP 50 10 8, effective June 1, 2025, restored pre-2021 discipline, seller notes must sit on full standby for the loan term to count toward equity, tax transcript verification is back, and a $10 million aggregate borrower-affiliate cap took effect in July 2026. The specialist lenders that dominate this book responded to ZIPS with concentration limits and deeper trade-area scrutiny rather than exit.
On the exit side, single-tenant net-lease car wash cap rates have settled at 6.2 to 6.4 percent, about a hundred basis points wider than the mid-five percent prints of 2022. The July 2025 restoration of one hundred percent bonus depreciation, car wash structures generally qualify as fifteen-year property, put a floor under buyer demand through late 2025 and drained net-lease inventory in the process. That is a pricing support, not a growth catalyst, and underwriters should treat it as such.
What we are watching
The bubble thesis will be right or wrong on five measurable things, none of which have turned yet.
The first is the 2021 and 2022 cohort as it seasons: if resolved-loan defaults for those vintages climb toward or past the all-industry baseline, the case for a category-level credit problem gets real. The second is cap rates, sustained widening beyond about 6.5 percent would say the buyer pool has repriced risk rather than yield. The third is comparable-store sales at the surviving national platforms. The fourth is the count of active municipal moratoriums, which is the cleanest available proxy for corridor saturation. The fifth is membership churn, because the subscription base is now the collateral.
Until those move, the honest description of what happened to the American car wash industry is this: a supply cycle that self-corrected on schedule, a handful of over-levered platforms that met a rate shock at the wrong moment, and a credit performance record that remains better than the SBA average. That is a normal industry doing a normal thing. It is a worse headline than a bubble. It also happens to be what the data says.
Methodology
Figures on SBA lending volume, loan size and loss performance are Analytics.loan's analysis of the Small Business Administration's 7(a) and 504 loan-level FOIA datasets, filtered to NAICS 811192 (Car Washes), covering approvals from fiscal 2010 through the most recent published quarterly release. Default rates are expressed as charged-off loans as a share of resolved loans, those that have paid in full or charged off, and separately as charged-off dollars as a share of approved dollars. Unresolved loans are excluded from the denominator, which understates ultimate losses for recent vintages; readers comparing these figures to other published estimates should confirm the start year, program mix and benchmark basis before treating any difference as a disagreement about the industry.
Openings data is from the International Carwash Association. Bankruptcy figures are from filings in In re Zips Car Wash, LLC, No. 25-80069 (Bankr. N.D. Tex.). Operating results are from Mister Car Wash and Driven Brands public disclosures. Cap rate ranges reflect published net-lease market reporting. Municipal actions are drawn from the ordinances and council records cited.
Key figures for citation
Metric | Value |
SBA credit extended to car washes since FY2010 | $6.83bn across 5,807 loans |
Car wash charge-off rate, resolved 7(a) loans | 5.25% |
All-industry charge-off rate, same basis | 7.45% |
Car wash charge-offs as share of approved dollars | 0.62% (vs 1.50% all-industry) |
Peak-to-current 7(a) volume | $676m (FY2021) → $272m (FY2025) |
New express openings | 943 (2022) → ~550 (2025) → ~450 projected (2026) |
Professional wash adoption | 79% of US drivers |
Net-lease car wash cap rates | 6.2%-6.4% |
Frequently asked questions
Is the US car wash market oversupplied?
In specific corridors, yes. Nationally, the correction has already run. New express openings fell from 943 in 2022 to roughly 550 in 2025, with 2026 projected at 450 or below. Saturation in this business is a submarket phenomenon rather than a metro one: Colorado Springs carries 73 conveyor washes and more than 500 locations across all formats in a metro of 750,000 people, while other markets remain underserved. The relevant question for underwriting is the trade area, not the industry.
What is the SBA default rate for car washes?
Car wash loans have charged off at about 5.25 percent of resolved 7(a) loans, against an all-industry figure of 7.45 percent over the same window. Measured against approved dollars rather than loan counts the gap widens further, at 0.62 percent versus 1.50 percent. Two caveats matter: resolved-loan rates lag by construction, and the 2021 and 2022 approval cohorts have not finished seasoning, so the figure will drift upward.
How much does it cost to build an express car wash?
All-in development for an express exterior runs $4 million to $8 million including land. A prime one-acre pad costs $1.0 million to $2.5 million and a 100 to 150 foot tunnel package $1.0 million to $1.5 million. Section 232 tariffs at 50 percent on steel and aluminum have pushed the shell, vacuum canopy and mechanical package meaningfully higher since 2024. Break-even for a leveraged new build sits at 120 to 180 cars a day with a ramp of 24 to 36 months.
Why did ZIPS Car Wash file for bankruptcy?
Leverage meeting a rate shock, not weak car wash economics. ZIPS entered Chapter 11 in February 2025 with $653.9 million of funded debt and roughly $1 million of cash, with senior secured term loans that had matured five weeks earlier. Annual cash interest expense had climbed to $93 million from $59 million as 2022 and 2023 rate increases worked through a floating-rate stack. The company reorganized in 84 days and the tunnels kept operating.
What are car wash cap rates in 2026?
Single-tenant net-lease car wash cap rates have settled at 6.2 to 6.4 percent, roughly 100 basis points wider than the mid-five percent prints of 2022. The July 2025 restoration of 100 percent bonus depreciation, under which car wash structures generally qualify as 15-year property, put a floor under buyer demand through late 2025 and drained net-lease inventory.
How much revenue does an express car wash generate?
A mature express site generates $1.5 million to $3.0 million in revenue with 35 to 50 percent four-wall EBITDA. Membership now drives the model: at the largest national operator, subscription accounted for 79 percent of wash sales in the fourth quarter of 2025. Benchmarked non-member retail revenue fell 11.9 percent year over year in the second quarter of 2025 while membership revenue held, which is the divergence that matters most for a pro forma.
Sources:
U.S. Small Business Administration, 7(a) and 504 loan-level FOIA datasets, NAICS 811192 (Car Washes), fiscal 2010 to present
U.S. Small Business Administration, SOP 50 10 8, effective June 1, 2025
In re Zips Car Wash, LLC, No. 25-80069, U.S. Bankruptcy Court, Northern District of Texas
Mister Car Wash, Inc., public financial disclosures and earnings commentary
Driven Brands Holdings Inc., public financial disclosures
Rinsed, operator benchmarking data on membership and retail wash revenue
Published single-tenant net-lease market reporting, car wash cap rates
Municipal ordinances and council records: Cape Coral FL, Birmingham AL, Hesperia CA, Hemet CA, Perrysburg OH, Warren MI, Mission TX
U.S. Federal Reserve, WSJ Prime Rate
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