Convinced that U.S. Automakers are in big trouble, President Elect Obama is seeking a $50 Billion bailout that could inject enough money to get the automakers through their current crisis. If approved, the measure would need the support of President Bush, a Czar would be placed in charge of the automakers to oversee the companies receiving aid.
While this cash infusion would indeed give the companies time to get things running more smoothly, there are many issues in the auto sector that need to be addressed. With pensions and jobs on the line, this is a political obstacle course that will be hard to navigate. Unions will want their piece of the pie, as well as certain guarantees. However, if the problems that caused this instability are not remedied, it is possible that we could simply be throwing good money after bad.
In 1979, the government stepped in to help bail out Chrysler. The bail-out was a success because Chrysler developed decent cars at decent prices. The bailout trickled down to the consumer level. If this $50 Billion does not trickle down, then the ultimate success of such a bailout may not carry the same level of success. With auto sales down, there needs to be a stimulus for consumers to have the confidence to buy. Tight credit markets do not help the situation, and short term 0% promotions leave consumers with too large a payment.
For investors in satellite radio, the prospects of a bailout for the auto sector is something to watch closely. Should sales pick up, it will mean more installations, more exposure to consumers, and eventually more self paying subscribers. Because the OEM channel is such a big factor to satellite radio, watch for reaction in price for SIRI on any bailout news.
Position: Long SIRI.