Zips Car Wash Gets Zapped as Booming Industry Sees a Slowdown

Car Wash Industry’s Growth and Recent Challenges

The U.S. car wash industry experienced a boom in recent years, with around 900 new locations opening annually, driven heavily by private equity investment. However, signs of a slowdown have emerged, with new construction tapering off from highs of 936 openings in 2021 and 943 in 2022.

Zips Car Wash, backed by Atlantic Street Capital and operating 260 locations, filed for Chapter 11 bankruptcy in February 2025. The company plans to restructure under existing lenders and reject 41 leases due to mounting debt, increasing competition, and financial strain.

Divestitures and Industry Restructuring

Other major players are also adjusting strategies. Driven Brands Holdings is exiting the car wash business, selling nearly 400 U.S. locations for $385 million. Meanwhile, Take 5 Car Wash’s parent company plans to sell all its U.S. car wash locations.

Economic pressures, including rising interest rates, pandemic-era expansion debt, and reduced consumer discretionary spending, have impacted car wash chains like Zips and Mister Car Wash, the largest U.S. operator with 500 locations.

Heightened Competition and Private Equity Influence

Increased competition from new entrants and aggressive expansion has shifted the industry towards "do-it-for-me" models, replacing traditional "do-it-yourself" car washes. This shift has fueled consolidation and competition for market share.

Private equity firms have been major drivers of growth, with investments from firms like Atlantic Street Capital (Zips), Oaktree Capital (Whistle Express), KKR (Quick Quack), and Warburg Pincus (El Car Wash), attracted by the industry's scalability, subscription models, and low labor costs.

Real Estate and Sale-Leaseback Activity

Zips is actively renegotiating leases and closing underperforming sites, including the sale of six Orlando locations to El Car Wash for $50 million. Sale-leasebacks remain a popular financing tool, with Mister Car Wash raising $134.9 million in 2024.

Market Outlook

While some markets face oversaturation, well-run car washes still show strong fundamentals. However, future investments are expected to face greater scrutiny, with investors closely evaluating rent levels, operator health, and site performance. Industry growth is likely to continue but at a more cautious pace.

Source:CoStar