September 2013 auto sales are in, and for the first time in 2013 the year over year comparison was negative. Auto sales for September 2013 were 1,134,170 with a SAAR of 15.2 million. Yes, September looks disappointing when compared to the 16 million SAAR numbers we had gotten used to. The news is not all bad however.
For the quarter, sales stood at 3,942,843 units. This is about 180,000 units less than the last quarter where SiriusXM announced an impressive 715,000 subscribers. For some perspective, specific to new car sales and a 65% installation rate, the quarter saw about 117,000 less satellite radio equipped cars sold. Because the contracts with auto manufacturers differ, the impact is likely about 50,000 less subscribers in Q3 vs. Q2. That being said, the used car initiative has been carrying a great impact, and because subscribers counted from used cars trail by a quarter, the used car sales last quarter will convert to subscribers in Q3.
For the year, auto sales are at 11,750,807. Essentially we need Q4 sales to be at just 3.75 million to hit the 15.5 million mark that is the baseline of expectations. It is quite possible that we could see 2013 auto sales come in near 15.7 million units.
It is my belief that the Q3 subscriber number has a chance to rival the number put up in Q2 despite a poor September performance. For that to happen we need to see steady churn, and good traction from the used car channel. My low end estimate for Q3 subscribers would be 665,000. My high end estimate would be 705,000. If I had to narrow down the gap I would estimate that we will see the company announce between 678,000 and 690,000.
The bigger dynamic investors need to consider is what will happen in Q4. The GM deal will change. In the past GM subscribers were counted as subscribers at the time that a satellite radio equipped car is sold. The new terms will only see subscribers counted AFTER a 3 month trial and IF the consumer elects to keep the service. Example Below:
OLD GM DEAL
- Manufacture 100,000 cars
- 65%, or 65,000, are satellite equipped.
- Satellite equipped cars are sold and subscription is counted.
- Company adds 65,000 to the subscriber count.
NEW GM DEAL
- Manufacture 100,000 cars
- 65%, or 65,000, are satellite equipped
- Satellite equipped cars are sold and an UNCOUNTED trial starts.
- 45% of these trials will convert, or 29,000
- Company counts 29,000 subscribers in the quarter AFTER the car is sold.
WHAT THIS MEANS
- GM sells about 700,000 cars in a quarter. Of that a minimum of 455,000 are satellite equipped. The number may actually be closer to 525,000. For the purpose of ease I will assume 500,000.
- Under the previous deal, 500,000 subscribers would be counted as gross additions in the quarter.
- Under the new deal those 500,000 will not be counted at all in Q4.
- What we will see is that 45% of these will convert to self paying in Q1 of 2014. That means 225,000 additions in the first quarter of next year.
- Q4 will be missing 500,000 gross additions in Q4 because of new GM deal. Q1 will see 225,000 gross additions instead of what used to be 500,000.
- The finances of the new GM deal are better. We will take a hit on the reported subscriber numbers, but make it up financially in the longer term.
I anticipate that because of this we may see Q3 subscriber numbers announced at any time, and we will see the Q4 announcement just after the new year on the holiday. Analysts understand this new GM deal, but the street and many retail investors may not understand the dynamics. As a SiriusBuzz Premium member, you have the knowledge.
As we move into Q4 the categories will shift dramatically. The leading category, which supplies COUNTED subscribers at the time of manufacture, will be about 38% of the pool. The point-of-sale category, which supplies COUNTED subscribers at the time of sale, will be about 14% of the pool. The trailing category, which supplies COUNTED subscribers only after the consumer elects to keep the service will have about 48% of the pool. Compare that to the current dynamic depicted in the chart and you can see why investors need to prepare for an adjustment.
In summary, while September was not pretty, the quarter was very good. Subscribers for Q3 should be in the ballpark of Q2. Subscribers in Q4 will be way off what we are used to seeing. Stay tuned!