It was only a few days ago that everyone was celebrating a January 2012 Auto SAAR of 14.1 million on auto sales of 914,000. The January figure came in above the estimates of every auto analyst and probably initiated more questions than jumps for joy. As the numbers went, 914,000 in auto sales was a good start to the year. However, only by digging deeper can one establish whether January was the start of a bigger recovery, or an anomaly.
As it turns out, fleet sales were the difference makers in January auto sales. The long-term trend had been that fleet sales make up about 20% of all sales in a good month. Certainly there are peaks and valley's in the percentage in any given month, but 20% has been a decent number to work with for quite some time. In January of 2012 the fleet sales represented 24% of all sales. A boost above the 19% most analysts were anticipating for what is usually the slowest sales month of the year.
What does that 5 points mean? Essentially it represents an additional 46,000 cars and trucks sold. It was the difference between a SAAR of about 13.3 million and the reported 14.1 million. The next natural question is what it means to satellite radio. The answer to that requires some additional digging.
The big three of Detroit had fleet sales account for 30% of their total. Ford, GM, and Chrysler are among the longest term partners of Sirius XM, and account for an impressive number of satellite radio subscribers because of how deals are structured. The good news is that sales are sales, and production is production. The bad news is that fleet sales typically have less success in conversion than retail sales. Certainly the promotional subscriptions will help the subscriber numbers (3 months for GM, 1 year for Chrysler, and 6 months for Ford), but the downside is that fleet sales are not as high a caliber for satellite radio. That being said, we are talking about 46,000 cars, of which between 30,000 and 35,000 have satellite radio. Simply stated, these numbers will not rock the boat.
The real meat and potatoes of this news is that while a SAAR of 14.1 million was great to see, it carried a certain anomaly that may or may not continue as we progress through 2012. This is a small caution flag for Sirius XM investors. If the fleet trend returns to normal 20% levels, then we could see a lower SAAR in February. It is important to remember that SAAR is designed to take the seasonality out of the auto sector, not account for fleet sales. It is also poor at accounting for sales bumps due to heavy promotional activity.
For February of 2012 to match the SAAR rate of the 14.1 million we saw in January auto sales will need to come in at 1.08 million according to Jeremy Anwyl of Edmunds. Last year February auto sales were at 992,000 implying a rise of 10%. The January over January rise was 11%. To put things in perspective, the 46,000 bump because of fleet sales (the delta between 19% and 24%) would have had January sales at 868,000. This would have been a more modest 6% year over year gain.
In summary, there is no need for concern, but rather a need for mild caution. If fleet sales return to normal levels in February, we run the risk of seeing a decrease in SAAR and the associated sensitivity to how the headlines are portrayed. On the flip side of the coin, if February can manage sales of 1.08 million with fleet returning to normal levels, it would be an indication of retail strength and great news for satellite radio investors. Time will tell, and we will monitor February sales as the month passes.