May auto sales are anticipated to be above the 1 million mark. That is the good news. The bad news is that the Seasonally Adjusted Annualized Rate (SAAR) for May is expected to fall to 12.2 million according to Edmunds, and that means the SAAR rate is down 1 million from the 13.2 SAAR we saw in April. This is the first time in months that SAAR rate has fallen. May is typically a month that is very strong in auto sales, and almost always sees a higher sales figure than April. This year that did not happen. Analysts do predict that 2011 will still see sales of about 13 million vehicles.

Industry experts attribute the poor sales to an issue of supply and demand. The earthquake and tsunami in Japan has indeed continued to take its toll on the industry. With production being impacted for many brands, there are simply fewer cars available to sell. This hiccup in supply has allowed manufacturers and dealers to increase prices slightly as well as tone down customer incentives. The combination of higher price and lower incentives has some consumers waiting for better deals to buy.

For satellite radio investors the news that, despite setbacks, sales are over 1 million is music to their ears. In Q2 we saw auto sales of 1.15 million in April, and anticipate 1.1 million in May. When auto sales are over 1 million per month Sirius XM is typically able to report decent numbers across the board. With sales after two months anticipated to be at about 2.3 million, Sirius XM is well on their way to having another quarter where auto sales top 3 million.

The key for Sirius XM (NASDAQ:SIRI) investors is in understanding that the May news, while good for SIRI might not be perceived well for the auto channel. Sirius XM is tied closely to car sales because it is the primary way the company gains subscribers. This could be a case of perceived bad news in the auto channel impacting Sirius XM even though the numbers are actually very acceptable for the company.

Position - Long Sirius XM Radio