January 2008 auto sales are in. Overall, while sales are down year over year, the comparisons are not as bad as they may look at first blush. Yes, there are a lot of red arrows, but at the end of the calculations, the sector is off by a bit over 4% when compared to a year ago.
With SDARS commitments by OEM's ramping up into SDARS being a bigger percentages of production, the 50,000 fewer less cars sold this year is more than offset. This bodes well for satellite radio. Many sector followers believe that the OEM channel is the "driver" for satellite radio, and given what has transpired in the last few months, this can still be the case as 2008 progresses.
This chart seems to sometimes cause confusion in that some people try to extrapolate the OEM sales figures into subscriptions for satellite radio. The data presented does not translate into subscribers in any manner. The OEM subscriptions, and their differences are quite extensive. Some OEM's produce more SDARS equipped cars than others. Some OEM's have lower subsidies (front end cost), but get big revenue shares (residual back end costs). Some deals have three month terms while others have six months, and still others one year. Some subscriptions are counted because the OEM pays for a subscription. Others are not counted at all until the subscriber is paying. I think you get the point. This data represents auto sales, and the SDARS partners for each automotive brand. Plain and simple. There is crossover with a few brands, and that is explained in the data.
Details on the OEM channel that investors should be cognizant of are the up front costs, the revenue share, the penetration rate, the cash flow of the deal, the impacts of the deal structure on metrics such as ARPU, SAC and churn. I would not recommend looking at simply one specific metric without looking at all of these factors. In addition, comparison between companies is a task that is inherently more complex than most may think, as all of these factors need consideration. For a decent look at what is happening, you simply have to refer to the bottom line, and do comparisons within each company with quarters or years past.
Looking to February, we have the Presidents Day weekend auto sales. This weekend is an aggressive sales weekend for the automobile manufacturers, and will clear out older inventory and launch the first quarter numbers for the sector. SDARS deals that are sales driven will benefit from an event such as this in terms of subscriber numbers. SDARS deals that are production driven will remain pretty constant, but future production may be impacted based on sales.
Position - Long Sirius, XM, No Position OEM's