A Deeper Look At December 2010 Auto Sales
As most already know, December 2010 auto sales were very strong. At about the two thirds point of the month experts were projecting a great December. Those projections were spot on and those that listened were rewarded.
Being invested in satellite radio means keeping a close eye on the OEM channel. It is through new cars that most consumers first experience satellite radio.
Within the OEM channel there are three distinct groups of promotional subscribers (see chart). I call them leading, point of sale, and trailing.
The importance of this is that some subscriptions are counted at point of manufacture, some at point of sale, and others only after a trial period ends and the consumer elects to remain a subscriber. All of these impact metrics such as subscriber count, churn, Subscriber Aquisition Costs (SAC) revenue, deferred revenue, and Average Revenue Per User (ARPU) in differing ways.
Leading subscribers are counted at the time of manufacture, or more specifically the moment the OEM pays Sirius XM for a promotional subscription. The subscriptions are happening while the car is in transit to an auto dealer, or sitting in inventory on a dealer lot. For this reason the sales that are reported each month are not as important as the number of cars being manufactured. Point of Sale subscribers are counted when a consumer buys a car. Trailing subscribers are counted months after a car is sold and only if the consumer elects to become a self paying subscriber.
In a perfect world Sirius XM would see a balance between these three categories. That balance represents stability and keeps various metrics in check by not allowing the data to skew to heavily into one segment.
In December what we saw was the leading subscriber category carry a distinct advantage over the others. Nearly 36% of the cars sold came from this category. Because these cars were sold, they must be replaced with new inventory. Manufacturers have remained pretty consistent with production, but bumps up such as this mean that perhaps some acceleration is needed.
The Point of Sale category came in at about 34%. This is exactly where we would like to see this category sit, with about a third of the overall totals. The Trailing category brought up the rear, registering only 30% of the total.
What this means to investors is that as long as production ramps up for the Leading category, and with strong sales in the Point of sale category we could see a nice positive impact on Q4 subscriber numbers. The “penalty” comes later on when the under-performing Trailing subscribers finally tally in their participation into the subscriber pool.
Simply stated the results for December auto sales should help to deliver a great subscriber numbers for Sirius XM. As the auto channel continues to grow in sales volume Sirius XM will continue to benefit.
Position – Long Sirius XM Radio
Spence,
Whats your “guess” for 4th Q NET sub additions? Obviously OEMs had a good quarter but perhaps the used market and Xmas sales at Best Buy etc might have increased numbers further?
Agreed – Spence, lets guess for the sake of guessing.
Relmor at Satelliteradioplayground estimates Q4 subscriber adds at 275K. His rationale is based on siri announcing 20M customers at the end of November. This means that October and November produced about 130K subs to get to 20M subs. 145K should account for December. To remind, siri projected 20.1M to finish 2010, with 100K left for December to meet the target. I tend to believe that the number may be higher or even much higher because when siri announced 20M at the end of November they said that they had achieved that number “recently”. The timing of such announcement was convenient because it was only two weeks before McCartney’s concert to mark the 20 million subs. We can interpret “recently” as a day before or three weeks before, which is still “recently”. It is unlikely that siri would produce such relatively poor numbers in the best auto sales quarter in 2010. Mel also under promises and over delivers routinely. 45K above his 2010 target is not much of an achievement. I would question that October and November produced only 130K new subs. This is why I would guesstimate their number at 350K to 400K adds or even higher. These numbers better represent Mel’s ” under promising and over delivering” habit. These numbers also provide better representation of their 2011 performance. I hope it is not too long before they announce. However, Mel loves suspense. Now, he can afford some.
I think we added 257k last 4th quarter. I think we get more from CPO, more from retail with Stern re-signing and stronger OEM market in quarter and Dec – looking for 404k myself.
I need to correct my previous post. Relmor is at “kingofalltrades” rather at “‘satelliteradioplayground”.
Spencer,
I think it is great that you give such detail on the OEM sales and the three different categories and I would like to see you go back to doing at least a quarterly update on the CPO market like you did in the past…not sure why you stopped. This really differntiates you from Brandon and his technical analysis and Demian with his analysts as guests. You don’t have to worry about Ryan because he still thinks Stern is negotiating his contract on Orbitcast.
Spencer –
what’s your projection on 4th quarter subs and do you think 1st Q can outpace 4th because of Stern reinvigorating things with his signing, Laura Schlessinger going exclusive ?
How about Sirius not count any auto subscribers until money is actually given to Sirius.
they dont count anything until money given–but i think you mean when a car is sold as some OEMs pay sirius immediately as a car comes off the production line and is on the lot unsold–But sirius is paid
I just leased a new car and returned my old car. With the new car, I get a new 6 month sub to Sirius. I started getting e-mails from Sirius that I was a canceld sub (I assume because it is a new radio in the car). How do I get counted in the system? A new sub, canceld sub? How many “new car” sales are in fact already Sirius subs? I love the product, would be happy to pay for it, but the new car sale takes care of it for 6 months. Then at the end of the 6 months,I will happily continue my sub, am I a converted sub?
Kevin….
Because you stated that you got a 6 month sub, I am going to assume that you leased a Ford or Lincoln product. If that is the case your radio was counted as a sub at the point of manufacture. It could be that since you bought the car the system does not have you fully integrated yet. You are a promotional sub right now. Ford paid Sirius for the subscription. At the end of your promotional period, if you keep the service you will be a self paying sub.