There are those that say the future of satellite radio rests with the automobile. In many ways they are correct. It is through the auto that the bulk of satellite radio products are introduced to the market, and concentration on retail radios has faded. The concept is simple. Put the satellite radio receivers in the cars, and the subscribers will come. Past history tells us that about half of those exposed to SDARS elect to keep the service.
Now satellite radio's biggest OEM partners are running on shaky ground. Chrysler is the closest to going down, and GM is not far behind. Ford, the big three company in the best position is trying to avoid using government bail-out money, but themselves are in a dire situation as well.
An auto bailout has been passed by the house, but the measure needs to get through the senate in order to become a reality. At stake is the very method in which cars are made. Unions, suppliers, and the management of the big three have to reach a common ground, and that is no easy task. Partisan debate in the Senate will be the new focal point.
Sitting on the sidelines we have Sirius XM Radio. GM, Ford's and Chrysler have been the biggest installers of satellite radio. All three companies are having troubles selling cars, and that simply means that less people are being exposed to satellite radio.
Some say that if one of the big three went down, that it would not be an issue for SDARS, because auto buyers would simply migrate to another brand, and thus still be exposed to satellite radio.. This is not at all the case. The deals with auto manufacturers differ. Most other companies are not installing satellite in the same number of cars as the big three, and many do not have the same kind of revenue incentives that the big three were lucky enough to get. GM, Ford, and Chrysler have a cash incentive to install SDARS. Many other OEM's do not.
Additionally, there is the issue of equipment supply. If a big three company goes down, perhaps as much as 100,000 chipsets will be virtually destined for purgatory. Coordinating and increasing installations is a process. It does not happen overnight. A gap will happen in installations, and SDARS may potentially have to pony up additional subsidies to other OEM partners to accelerate the process, or sales could be driven to other big three companies that enjoy higher revenue share contracts. Make no mistake, SDARS is not immune to the problems of the big three. The question is how big the impact will be, and how long it will last. Satellite radio should be able to weather the storm, but this whole auto issue is a headache that SDARS simply does not need at this point.
Satellite Radio investors should watch the news carefully regarding this issue. They should also monitor auto sales, which companies are expanding market share, which are losing it, and how dedicated each manufacturer is to satellite. The bailout issue will be the headlines, but sector watchers can already be preparing and getting a better understanding of how the dynamics of the automobile industry impact the sector.