Citi analyst Tony Wible published a note today highlighting comments from auto sector analyst Itay Michaeali. I simple terms the analyst does not see a situation where any of the OEM’s claim bankruptcy. While they do see a need for the “Big Three” to have a cash infusion, the likelihood of Chapter 11 would be offset because, “such a filing would be harmful to debt holders due to the meaningful loss of market share that would ultimately impact all stakeholders including labor unions and existing customers. A more suitable and likely workout plan entails a recap which would provide higher recoveries and fewer job losses.” Michaeli sees Ford as the OEM with the best liquidity.
Wible, the satellite radio analyst then adds what he feels the impact on SDARS would be. According to Wibble, he expects no near term disruption to unit production, but should one OEM file, the market share would be shifted by sales from other auto manufacturers. Wible made no adjustments to their OEM installation rates because they believe that the numbers they have are already conservative enough.
On point that I disagree with Wibble on is the impact if one of the “Big Three” does file. Ford, GM and Chrysler all put a substantial amount of installations into the marketplace. If one of these OEM’s were to file Chapter 11, the chipsets that are already in the hands of the OEM and subsidized will not simply shift elsewhere. While other OEM’s will absorb market share, they may not be as big a contributor to SDARS installations.
The OEM channel is important to SDARS. When the sales drought stretched past 5 months, it became something that satellite radio sector watchers should pay attention to. While calling a fire sale would not be prudent, it would also be foolish to take your eye off of the companies responsible for a large number of installations.
Position – Long Sirius, Long M, No Position OEM’s