For satellite radio investors, the status of Chrysler is big news. The auto manufacturer has already announced a halt in production that could virtually wipe out any contributions the Chrysler brands to the subscriber roles, and the fact that they are in bankruptcy could have consumers a bit nervous when it comes to buying a new car. Compounding that issue was that there was no Chrysler sponsored financing available. This meant consumers who wanted to buy a Chrysler brand had to come up with their own financing.
At least one worry was eased today as a Judge Arthur Gonzales ruled that GMAC Financial Services can become Chrysler's preferred lender. Under the agreement, the exact details of which were sealed by the court, GMAC will be allowed to provide showroom financing to Chrysler dealers and have the right to exclusively offer certain discounted financing rates to Chrysler customers. Thus, it lends a helping hand to both dealers and consumers.
Because Chrysler is shutting down production for a substantial part of the quarter, subscriber numbers will be impacted. The big news for satellite radio investors in this new financing agreement is that Chrysler cars that are already in inventory are now easier to sell. Because of this, the "parking lot subscribers" will become revenue generating subscribers as they are sold. The impact will be a decrease to deferred revenue (a liability) and an increase to revenue. This will also improve the Average Revenue Per User (ARPU) metric because the number of vehicles that are not generating any revenue ("parking lot subscribers) will decrease.
Simply stated, the impact of Chrysler's situation is:
- Decrease in subscribers.
- Decrease in deferred revenue
- Decrease in Subscriber Acquisition Costs (SAC)
- Increase in revenue
- Increase in Average Revenue Per User
- More cash on hand because of no installs.
This is the reason understanding OEM deals and the differences in them is important.
Position: Long Sirius XM Radio