March Auto sales figures are finally in, and the numbers are very good, albeit slightly below recent analysts expectations from True Car and Edmunds. While not official yet, I would venture to say that both True Car and Edmunds gave more weight to fleet sales than perhaps they should have. It is a tough issue because January and February were very strong in the fleet category and it had everyone hedging toward that category remaining above normal. Both of those auto websites did say that they felt fleet sales would weaken slightly, but both still had fleet sales, as a percentage of overall sales, above normal. The good news for Sirius XM investors is that it is retail sales that drive the subscriber bus more so than fleet.
March brought in over 1,400,000 in sales! An impressive number that we have not seen in quite some time. The actual sales tally was 1,403,397 units, about 33,000 below my estimate. As usual, what is most important when looking at auto sales is the mix. Long time readers are aware that the auto sales sector delivers subscribers to Sirius XM in three ways. The first is at production,m which I call "Leading Subscribers". The second is at the time a car is sold, which I call "Point-Of-Sale" subscribers, and the third is after the promotional trial is over and only if the consumer elects to keep the service. I call the third category "Trailing".
One reason that Sirius XM's 1.3 million subscriber guidance was as low as it was, was because the mix in auto sales will have a direct impact on results. With sales beginning to normalize from the Japanese makers after the tsunami of a year ago. we may see some recovery in the trailing category which provides fewer subscribers to Sirius XM. It is not that the trailing category performs worse in terms of subscribers, but rather the function that the promotional period is never counted as a subscriber.
Looking at the data we can see that indeed the "Trailing" category is normalizing. What is interesting is that the "leading" category is not suffering. Instead, the suffering segment is the "Point-Of-Sale" category, which now sits at about 29.5% rather than a normal 33%. This is substantial in that it is the "point-of-sale" category that delivers subs with auto sales. "Leading" contributors offer up subs with production, and "trailing" only if the consumer elects to keep the service.
What seems to be happening is that sales are going to the "trailing" category at the expense of the "point-of-sale" category. Think about it this way...Every "Point-Of-Sale" car sold during the quarter is counted in the subscriber rolls. Only about 44% of those cars in the "trailing" category will ever get counted, and it takes three months to even have that chance.
Regardless of all of this, sales in Q1 of 2012 were well above last years pace. Even with slightly higher churn due to the Sirius XM price increase, the numbers we are seeing are over 400,000 units better than last Q1. 400,000 cars sold means an additional 260,000 satellite radio equipped cars. Extending it further, the subscriber number provided by that boost is 114,000 more than last year. That should be more than enough to offset a slightly higher churn.
The bottom line here is that Sirius XM may well need to revisit that subscriber guidance of 1.3 million net additions. Already, auto sector analysts seem to be moving the bar on auto sales. We have gone from "approaching 14 million" to "above 14 million". Only time will tell, but I would expect Mel Karmazin to move the bar to at least 1.4 million sooner rather than later.