By Robert Roman
This past April a friend sent me an e-mail news alert written by Steve Rotlevi, president of the Association of Carwash Owners Inc. in New York. The alert was about New York State and New York City government efforts to promulgate laws to raise the minimum wage.
Between December 2016 and December 2021, the minimum hourly wage for all employees in N.Y. would increase from current levels to $15. The State would also establish a 12-week paid family-leave program that would apply to maternity, the care of the critically ill, or stress from military leave.
Additionally, NYC would require car wash owners to pay a license registration fee and post a surety bond or face possible unionization of their business. According to Rotlevi, these requirements, some of which have since come to pass, would change the car wash industry drastically, impact future decisions, and change how business is done in New York, especially NYC.
Let’s test this assertion by estimating the cost of compliance and applying it against a car wash.
Assumptions are a $550 registration fee, $15,000 for the surety bond, and let’s throw in $4,500 for professional fees — a total cost of $20,050 to be expensed. Average wage is $10.
The family leave program is funded entirely through a nominal payroll deduction on employees so it costs businesses nothing.
Our example is a full-service wash with a 75,000 car count, $17 average per-car revenue, and a business-only triple-net lease, which is a common form of ownership for conveyor washes in NYC and other areas.
Table 1 – Financial Impact
Shown in Table 1 is the estimated financial impact from increasing the average wage from $10 to $15. Labor burden includes line labor, management, and payroll expense.
Righting the ship would require increasing the annual car count by 16,500 (53 more cars a day) or raising prices so that the average per-car revenue increases by $3.75 to $20.75.
Another option would be to squeeze the inherent operational inefficiency out of the full-service wash format. Unit per man-hour for our example wash is 1.7 [75,000 washes/(22 persons X 2000 hours)], excludes management.
This is like saying it takes one person an average of 35 minutes to wash one car. By comparison, I’m 64 years old and can still wash two cars in an hour without a conveyor.
So, if we eliminated seven jobs, unit per man-hour shoots up to 2.5, labor cost drops by $213,750 plus payroll expense, and earnings recover to the previous levels.
Experience shows it is possible to cull seven employees from the ranks of the traditional full-service wash format. This is achieved by repositioning the business, making certain investments in technology, and operational improvements.
What car wash operators and other business owners have little influence over is minimum wage legislation and rogues. Rogue business operations are not new. For example, when I moved to Florida in 1985, one of the country’s largest big-box stores would routinely hire temps to clean up the areas behind their massive warehouses.
Workers would be picked up from behind the temp service office and transported to the worksite in the back of a pick-up truck. Here, workers would handle scrap steel, bandings, barrels, pallets, boxes, old shelving, and other accumulated waste.
However, these people were not provided with work gloves or safety shoes (some workers in sandals), and there was no access to a toilet, drinking water, or first aid kit. And there were few breaks.
Also, probably half the temps were undocumented workers. As for $15 minimum hourly wage, it may be inevitable.
According to the United Way Alice reports, people that are asset limited, income constrained and employed (ALICE) must live paycheck to paycheck due to the high cost of living and factors often beyond their control.
For most ALICE individuals, any small emergency can quickly become a major financial crisis, plunging these working families over the edge into financial chaos. When this happens, both families and employers are hurt.
In Florida, over 30 percent of households are walking this financial tightrope. In northern New Jersey, it’s 40 percent. Arguably, it’s the same or greater in NYC. Ostensibly, a great many car wash employees qualify as ALICE.
In the final analysis, it may come down to affected car wash owners revisiting the initial phase of business development. Here, developers would often prepare a concept study or sanity test to determine if the business idea is adequate and warrants further time and effort.
An adequate idea or business concept is one that is commercially viable and provides the stakeholders with a sufficient return on invested equity.
One aspect of successful planning is technical viability, which involves capacities and availability and quality of resources inclusive of raw materials, labor, and management expertise. For example, the typical cost to make a small electronic device is $120,000, which includes non-recurring expenses for engineering, mold making, prototyping, and certifications. Eighty percent of the cost to make a small electronic device is in the bill of materials.
Moreover, few factories in China are willing to take orders below 5,000 pieces. First orders are usually worth at least $150,000 plus $7,500 shipping (5 percent of order). Consequently, to make money and an adequate return, the price must be sufficiently low to ensure the likelihood of selling hundreds of thousands of devices.
Almost 50 percent of the total cost to produce a full-service wash is labor burden. So, to make money, an adequate return, and comply with law, the price must be high enough to ensure sufficient gross sales. Otherwise, the operator would have to pay a lot less than fair wages to maintain the status quo.
This past presidential election campaign brought the notion of “New York Values” to the forefront in the media. According to the New York Times, values often reflect where one lives.
In the cities, things are pretty fast-paced and always alive.
Seemingly, everyone hustles and tends to work endlessly. People on the streets hold their heads up and they’re moving. Everybody has got something to do.
People can accomplish things in New York that they can’t possibly do in other places. Arguably, if car wash operators would draw on these values, I suspect they would be able to identify methods to mitigate the new business operating risks that they face.
Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at email@example.com.
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