As the car wash industry’s prominence grows, it’s never been more important to toe the line on antitrust laws.

By Tom Gresham

In its recent history, the car wash industry has avoided becoming the target of antitrust prosecution. However, those operators who let down their guard because of that past are taking an enormous risk. In today’s climate – and in light of the industry’s rapid growth and evolution in recent years – the possibility of prosecution may never have been higher.  

“We are living in the most aggressive enforcement period that I have seen in my career,” said Paula Goedert, an attorney with Barnes & Thornburg in Chicago and the legal counsel for International Carwash Association. “I’ve been a lawyer for decades, and I haven’t seen this kind of antitrust enforcement before. The Department of Justice is prosecuting a wide variety of operators in a wide variety of industries.”

Certain antitrust priorities have been codified into law for more than a century in the U.S. since the passing of the Sherman Antitrust Act of 1890, including that competitors cannot collude in any way that would reduce the ability of the consumer or the buyer to get the best possible deal for themselves. Every car wash operator would benefit from a thorough understanding of how antitrust laws apply to them and how to avoid falling afoul of them.

Wading into the wrong topics

Conversations between competitors can seem innocent, but they carry inherent risk. Goedert said there are two primary areas that operators should be wary of discussing with competitors, which she defines broadly as other operators in the field. One is elements of price, including the cost of products and labor, and the other is telling someone how to do business.

“For instance, a common way that people get into trouble with antitrust law is to tell competitors not to do business with a particular vendor,” Goedert said. “You can share your opinion about a vendor’s products and services, but you have to stop short of telling other people what to do. Don’t tell other people how to run their business.”

Goedert said that guidance is especially true when speaking to a group. However, Goedert noted that industry panels and speeches are less likely to be the scenes of antitrust violations because staff educated in the laws are likely to prevent someone traveling down risky paths. “It’s the off-the-cuff conversations that often get people in trouble,” she said.

Eric Wulf, CEO of International Carwash Association, said car wash operators need to be aware that seemingly innocent sessions of swapping strategy with their peers, whether at a trade show or in a social media forum, can cross the antitrust line if they are not diligent about understanding where that line is — and adhering to it. A conversation about pricing strategy on an online forum, for instance, could prove to be damning information if competitors involved in that conversation proceeded to make pricing decisions that aligned with each other.

Wulf said operators should simply be careful about sharing their business strategy with fellow operators.

“Someone who has a full-service car wash who finds out that someone is going to open a wash on the other side of town can’t suggest that the other operator only offer an exterior wash,” he said. “That’s not good for the consumer, and it’s prohibited by the Sherman Antitrust Act.”

Wulf highlighted that the ICA shares a reminder about proper conduct when someone registers for one of its industry events, including detailing the types of conversations that are not allowed for antitrust reasons. 

“We have a responsibility to let people know this can’t go on, and if we become aware of it, to exclude people from events to protect the good of the industry,” Wulf said.

An array of targets

As an example of the Department of Justice’s recent aggressive enforcement, Goedert highlighted that federal prosecutors are on their third prosecution of the chicken growers industry. She said the focus of the cases is largely on claims that chicken salesmen have talked about prices with each other.

“We’re advising our clients to act conservatively when it comes to antitrust,” Goedert said. “Now is not the time to be aggressively pursuing information exchanges with competitors.”

Goedert said that an industry experiencing rapid growth — such as the car wash field has experienced in recent years — “absolutely” will make it more likely to catch the attention of the Federal Trade Commission or the Department of Justice, the two entities charged with enforcing antitrust laws.

Wulf said he is not aware of any antitrust actions related to the car wash industry in its history, but he notes that might be because the industry has largely been occupied by smaller, independent businesses until recent years. Part of the possibly heightened risk today is that the industry’s markedly increased density in markets means more competitors and more opportunities for real or perceived collusion.

“Perhaps stuff was happening in the past that wouldn’t pass muster with the FTC, but we weren’t big enough to attract the government’s interest,” Wulf said. “Now with what’s happened with our industry, I think our risk is raised. Logic would dictate that we’re probably closer to the crosshairs of the FTC than we were before.”

Still, an industry’s relative size does not make it immune to prosecution. Some industries that have been targeted for antitrust enforcement in the past decade include the National Association of Breeders, the National Association of Teachers of Singing and the Professional Skaters Association.

The dangers of prosecution

Goedert said part of the risk of being prosecuted for a potential antitrust violation is the cost of your defense.

“Defending an antitrust claim is enormously expensive, and even if you have antitrust coverage on your insurance policy, that gets eaten up quickly by the cost of defense, and then there often isn’t any coverage left to pay any damages,” Goedert said. “The Department of Justice has a vast army of attorneys that they can bring in on any case, and the operator usually doesn’t.”

Goedert said few antitrust cases reach the trial stage, instead typically ending in settlements with a financial penalty for the businesses involved. Penalties can rise to “huge numbers,” she said, citing a $418 million judgment against the National Association of Realtors finalized this spring.

“The whole theory of antitrust is that consumers have been harmed,” Goedert said. “How do you measure consumer harm? How far back can you go in saying that consumers were harmed because, say, a car wash operator conspired with the other operators in town to raise prices? You can see where that number could add up quickly.”

In addition to the damage that prosecution would have on the specific operators involved, Wulf said being targeted for antitrust enforcement would be a drag on consumer goodwill and have ramifications for car washes throughout the country.

“This industry has come so far in the perception of it being a more professional, sophisticated business, and it would be really unfortunate for all of that progress to be destroyed by headlines about car washes colluding on pricing,” Wulf said. “That’s a really important piece of this to keep in mind.”

Goedert said the industry as a whole doesn’t need to be “scared,” but it should remain alert to the fact that this is a time of aggressive antitrust enforcement and operators’ understanding of what they can discuss with competitors should be comprehensive.

Wulf agreed.

“The risks of antitrust enforcement is probably a topic that has not been talked about enough in our industry, and that’s largely because it wasn’t among the top issues for us to worry about before,” Wulf said. “But now, given that the composition of the industry is changing so much, it’s past time for our operators to take a closer look at this and make sure they’re educated and careful.”

At its events, the ICA shares the following antitrust compliance reminder

It is the policy of ICA to conduct all of its activities in full compliance with federal and state antitrust laws. In the course of any formal, informal or social discussions at ICA events and activities, it is important that each participant refrain from discussing, agreeing, or exchanging information regarding any competitively sensitive information with any other participant. Such information includes, but may not be limited to:

• Fees charged, or costs incurred
• Any increase, decrease, or discount in fees or charges
• What constitutes a fair cost or price level
• Allocation of customer market areas or contracts with vendors
• Refusal to deal with any customer, class or group of customers
• Refusal to deal with any vendor, class or group of vendors
• What products or services will be offered to customers
• Other competitively sensitive information, such as information about market share, profits, margin, costs, reimbursement levels or methodologies for paying vendors, or terms of services

Certain categories of information may be exchanged through a formal survey process conducted pursuant to legal advice.