Zips Car Wash Files For Bankruptcy as Car Washes Dry Up

Zips Car Wash, one of the nation’s largest privately owned chains, filed for Chapter 11 bankruptcy amid rising competition, debt, and challenging lease terms, per CoStar.

The Bigger Picture

The US car wash industry has enjoyed its share of substantial growth, thanks to higher vehicle maintenance habits and a surge in ‘unlimited wash’ subscriptions.

However, rising competition, burdensome debt, and expensive real estate are beginning to take their toll on even the biggest operators. 

Zips Car Wash, a Plano-based Texas chain with 260 locations, recently filed for Chapter 11 bankruptcy. Like many other car wash chains, Zips is laden with debt and wants to reduce its real estate footprint by rejecting leases on 41 locations.

Role of Private Equity

The car wash boom can be largely attributed to private equity investments, with firms like Atlantic Street Capital and Oaktree Capital Management backing brands like Zips and Whistle Express Car Wash.

These investments helped accelerate car wash chain expansions, leading to plenty of new openings—900 new car washes annually in recent years. However, this rapid growth intensified competition and is, of course, unsustainable.

Zips CEO Kevin Nystrom acknowledged that the sector’s shift from a “do-it-yourself” model to a “do-it-for-me” model, coupled with an injection of new capital, led to oversaturated markets.

Financial Struggles

Zips Car Wash’s financial woes are only worsened by rising lease costs, as high rents make it difficult to turn a profit, particularly in saturated markets. Naturally, Zips is looking to renegotiate lease terms while also selling off underperforming sites. 

For example, in early February, El Car Wash acquired six Zips locations in Orlando for $50M. Additionally, Zips is in the process of selling locations in St. Louis for $20M as part of its restructuring.

Wider Sector Slowdown

Zips is not the only car wash operator facing challenges. Mister Car Wash (MCW), the largest chain in the US, and Driven Brands (DRVN), the parent company of Take 5 Car Wash, have both reported falling consumer demand.

Driven Brands has already decided to exit the car wash business, selling its nearly 400 domestic locations for $385M to Whistle Express Car Wash.

Sale-Leaseback Deals

Despite current struggles, some car wash operators are leaning on sale-leasebacks to raise capital.

Mister Car Wash, for example, completed $134.9M in sale-leaseback deals in 2024, with plans to remain active moving forward. This strategy allows car wash companies to free up capital while continuing to operate locations.

As the car wash sector keeps consolidating, experts predict a slower pace of new entrants. The next few years may see a stabler market, with established brands expanding as smaller competitors exit the industry.