Chrysler, one of the longer term Sirius XM OEM partners with substantial satellite radio installations, discussed a possible 2011 IPO and the fact that they are planning to move from 2010 global sales of 1.6 million vehicles to a 25% increase in 2011. This would represent total 2011 sales of about 2 million vehicles. The bulk of Chrysler sales transpire within the United States and Canada.
For Sirius XM investors the news of substantial increases in Chrysler sales bodes well. Chrysler, which includes the Dodge, Jeep, and Ram brands offers 1 year Sirius Everything promotional subscriptions on a substantial percentage of all cars they manufacture. A ramp up like this from Chrysler would seem to indicate that the entire OEM channel is projecting sales growth in 2011 over the sector performance in 2010.
Chrysler brand vehicles equipped with satellite radio are in what we at SiriusBuzz term as “leading” subscribers. Sirius XM’s deal with Chrysler has the company subsidizing radio installations (SAC), but the one year promotions are paid back to Sirius XM at the time of manufacture. This makes the deal cash flow friendly as money invested into installations is essentially returned to the company in the form of deferred revenue (a balance sheet liability) in a timely manner. The structure of the Chrysler deal is also very churn friendly as the promotional subscribers last one year plus the amount of time the car takes to sell after manufacture.
Chrysler’s success story in 2010, in many ways, mirrors the climb from trouble that Sirius XM saw a year earlier. Chrysler is in hopes of being able to issue an IPO before the end of 2011. This is news investors may want to pay close attention to. The GM IPO at the close of 2010 was viewed as a success, and in some ways even bolstered sales. Keeping tabs on Chrysler’s sales performance in 2011 can be a good indicator of how the auto sector will perform throughout the year.
Position – Long Sirius XM Radio