We all carry a heavy weight in our hearts for the disaster that happened in Japan and is ongoing even today. As sad as that is, it is time to look at what impacts these recent events could have on your investments. For Sirius XM investors this means looking at how the auto sector will be impacted. To study this we must first understand how the various auto makers supply subscribers to the company as well as where these cars are manufactured.
SiriusBuzz has long offered readers a unique report on auto sales that outlines promotional subscribers into three categories, "Leading", "Point-of-Sale", and "Trailing". Readers can refer to our February Auto Sales Report for a detailed explanation, but in simple terms, some promotional subscribers are created at manufacture, others when a car is sold, and a third category only after the consumer elects to become a self paying subscriber.
What we need to first look at is which category the various manufactures fall into, and then how many cars that company sells, followed by what there manufacturing capability is outside Japan. In addition we need to remember that the disaster in Japan will only carry an impact to Sirius XM if a.) there is no supply and b.) buyers refuse to shift to a different brand. Before going any deeper into this, it is my opinion that the impact will be minimal in March where the Seasonally Adjusted Annualized Rate (SAAR) is expected to be close to 13.5 million. This is the highest SAAR of 2011 and higher than any SAAR rate in 2010.
In the "Leading" category we have Mitsubishi and Mazada. Both brands are counted as subscribers at manufacture. Last month these two auto makers accounted for about 26,000 in auto sales, or about 2.5% of all sales. Given the numbers involved the impact will be minimal to Sirius XM. Certainly there will be a delay in subscribers from this, but at 60% penetration we are talking about 14,000 subscriptions.
In the "Point-of-Sale" category we have Honda, and Subaru. These two makers accounted for about 120,000 in sales last month. Combined they carry a little over 10% of the market. Honda is the bigger player by a wide margin and has substantial manufacturing capabilities outside Japan. There may be a small hic-up in supply of certain vehicles, but inventory levels should be able to handle the pace of sales.
In the "Trailing" category we have Toyota and Nissan. This category is where we will see the biggest impact. Combined, Toyota and Nissan accounted for about 234,000 or 23% of the market in February of 2011. Both Toyota and Nissan have substantial manufacturing capabilities in the United States and outside Japan. The impact for Sirius XM is still likely minimal as cars can still be produced to meet demand. Further, the consumers getting these cars are not counted in the subscriber pool unless they elect to become self paying after the promotional period.
The bottom line is that there will certainly be ripples that will impact Sirius XM, but they will play out over a six month period rather than anything instantaneous. In addition, if there are supply issues with one manufacturer, consumers have other brands to turn to. Impacts will likely not even be felt.
Position - Long Sirius XM