Although both Ford and Chrysler announced lower sales in August, it is production and not sales that Sirius investors need to be aware of. Sirius’ deals with Ford and Chrysler have these OEM’s paying for subscriptions as cars roll off the assembly line, and production metrics, with these OEM’s in particular are what drive the OEM subscription channel for Sirius.
The good news for Sirius investors is that inventory levels for both Ford and Chrysler are very healthy, and that means that production is anticipated to remain steady. Ford announced today that they will be producing 640,000 vehicles in the fourth quarter, matching their anticipated Q3 production number. A steady production stream translates to steady subscriber numbers. For their part, Chrysler’s production has been pretty close to that of Ford, and thus we can anticipate production of roughly 200,000 Chrysler vehicles per month.
Now, the key element to understand is that current production is for 2008 model vehicles. Chrysler has announced a 70% installation rate, and Ford a 50% rate. If we were to assume current installations of 60% from Chrysler, and 45% for Ford, then Q3 could be a very interesting quarter in the OEM channel for Sirius.
Production of 600,000 vehicles with a 60% installation rate would equate to 360,000 gross installations
Production of 640,000 vehicles with a 45% installation rate would equate to 288,000 gross installations
Combined, these two contributors to Sirius’ OEM channel would bring in a gross subscriber number of 648,000. Realistically, production ties all of North America, so we would have to take 10% of that figure away for those vehicles that go north of the border. This would bring the gross number down to about 583,000 potential gross subscribers. Add in Sirius’ other OEM partners and Sirius could top the record number of OEM subscribers that they posted in Q2. Better still, with production being stable in Q4, and the penetration rates reaching full potential, Q4 can be even better.
Obviously tracking the OEM channel is an ongoing process, but at this point the production news from Ford and Chrysler are positive for this equity.
Position – Long Sirius, Long XM