Edmunds has offered up what may be promising news for Sirius XM investors. According to the automotive website December auto sales may set up to be among the best performing months of 2011. Historically December ranks at about the 8th best month of the year in terms of sales. However, the last two years have shown that December is quite capable of being one of the highlights. In 2009 December was the best month. Last year it was the second best month with sales of about 1,145,000.
The best month in 2011 has been March with auto sales topping 1,245,000. That sets the bar high, but even if auto sales approach this number, it will be welcomed news. With October bringing in just over 1 million, and November bringing in just below that number, Q4 of 2011 is presenting some challenges for Sirius XM in getting to their subscriber guidance of 1.6 million.
If the auto sector can deliver sales approaching 1.2 million in December it would certainly go a long way in allowing Sirius XM to meet their guidance in a much easier fashion. If sales come in at just over 1 million, the challenges I laid out on Seeking Alpha will be very real. Thus, the magic question is what will December of 2011 deliver?
While it is still to early to tell, we can look at the previous quarters to see how sales have stacked up this year and how that relates to Sirius XM. In Q1 the auto sector sold 3.06 million cars and Sirius XM reported subscriber gains of 373,000. In Q2 auto sales came in at 3.27 million with sub gains of 452,000. Q3 saw auto sales at 3.18 million with the subscriber number coming in at 333,000. With just one month to go Q4 auto sales are at 2.01 million. In order to meet the Q3 total auto sales would need to come in at 1,168,000. This would make December the second best month of the year. To meet the best auto quarter, and Sirius XM's best subscriber quarter (Q2), auto sales would need to come in at 1,257,000, which would be an impressive feat.
There were some readers (muscle) that felt that I was not taking production into consideration when I stated that Sirius XM meeting guidance would be a challenge. I did, and ALWAYS do, take production into consideration. I am the one that has tracked the auto sector more closely than most, and grasp that production only matters from certain companies. The companies where production matters are called "LEADING". Ford is Sirius XM biggest "LEADING" partner. Prior to today the company had outlined a production increase of only 4,000 units in Q4 as compared to Q3 (656,000 vs 660,000). The company did announce a production increase today. They have bumped it up from 660,000 to 674,000, an increase of just over 2%. That additional 14,000 cars will bring about 9,100 additional promotional subscribers (assuming a 65% penetration rate). This added production does not really help move the bar.
What can move the bar this quarter is SALES. This is where we need to look to GM, Honda as the two biggest point of sale partners. From October to November GM sales dropped 3.5% and Honda dropped about 15%. The December projections by Edmunds offer some promise, but the company will still need to be aggressive with retention, increase take rate, and minimize churn to beat guidance of 1.6 million subscribers.
Position - Long Sirius XM