Sirius XM Used Car Market Report
A while back I had initiated coverage on the used car channel in an effort to aggregate data that may become useful. The used car market was materializing slowly and in the end the numbers were not moving the needle in a substantial manner so I put the report on hiatus. I am glad to report that the time has once again come to begin to report on the used car market. The reasons are two fold: A) With some new deals the used car market has a push that it simply did not have before and B) There is a lot of confusion / expectations out there regarding this segment of the auto sector. Here are some bullet points to consider:
- On June 20th of this year Sirius XM announced that consumers buying any satellite radio equipped used car from 1,000 participating GM dealerships, regardless of brand, a 3 month promotional subscription.
- On October 6th Sirius XM announced that consumers buying any satellite radio equipped used car from participating Nissan and Infiniti dealerships, regardless of brand, a 3 month promotional subscription.
- In November of this year Sirius XM announced that the GM deal mentioned above had expanded to nearly 2,000 dealerships.
- In December of this year the company was stating that they are seeing a take rate in these programs in the mid 30’s.
Obviously these are impressive announcements. However, before we run off thinking about how great this news was, we need to put it into perspective. There are 20,000 car dealerships in the United States. These two deals represent only 10% of the pie. That is the bad news. The good news is that these types of programs have plenty of room to supply growth going forward, and can help the company boost the gross additions line in a manner that was not happening before.
Now some other important data that we need to consider:
- There are about 20,000 new car dealerships in the United States
- There are about 40,000 used car dealerships in the United States
- There are thousands upon thousands of private sales in the used car market.
- Sirius XM has deals in place for about 10% of the new car dealerships that participate in their used car program (GM and Nissan/Infiniti)
- New Car dealerships tend to keep the better/newer cars, and send the older/inferior cars off to auction. Odds are that the many satellite radio equipped cars stay at new car dealerships or bigger used car dealerships.
- The take rate for these programs is about 35%
- While data varies, it is said that roughly between 4 and 4.5 used cars sell for every new car that is sold
- THIS ONE IS IMPORTANT – These promotional subscriptions ARE NOT counted in the subscriber numbers. The only way these cars become subscribers is IF the consumer elects to keep the service AFTER the trial and become a SELF-PAYING subscriber. This means that the benefit in Q4 comes from cars sold in Q3.
The trick at this point is trying to gauge the success of these programs, and to try to determine what they bring to the bottom line in terms of subscribers. While we could hazard guesses, it is perhaps more prudent to identify a methodology that gives us some numbers to work with. This is where used car superstore CarMax comes into the picture. CarMax is a national company that is responsible for 2% of the sales in the entire used car market. While 2% may not seem like a lot, it does give a decent idea of the types of inventory many new car dealers would have on the used car side of their business. One great thing about CarMax is that they allow you to search by any option, including satellite radio.
Each week I will track the used car market and establish some good data points from which we can extrapolate the used car space and the impact of the GM and Nissan deals. Today CarMax had an inventory of 30,647 vehicles. Of that total, 13.542 were equipped with satellite radio. This means that 44% of the inventory at CarMax is equipped with satellite radio.
Now to some number crunching:
- Assume that the used to new ratio is 4 to 1, meaning 4 used cars for every new.
- Assume that 70% of those cars go off to auction and 30% stay at dealerships. New car dealers usually supplement their inventory from auctions , but we have to start somewhere, so I am assuming that they keep 10% of trades and acquire another 20% from auctions.
- The items noted above would bring about an assumption that for every new car sold there are 1.2 quality used cars sold. I am applying a 1 to 1 ratio based on an evolving spreadsheet that I started developing to track this several months ago.
- Assume that the type of inventory at CarMax, for the most part, is representative of the type of inventory a new car dealer would stock for used cars.
Given these assumptions, we can begin to look at what the used car market programs such as the GM and Nissan deals will bring in Q4. As I mentioned earlier, we need to look at Q3 sales data to get the real impact in Q4. In Q3 new car auto sales were at 3,182,000. If we use the 1 to 1 ratio, we get a quality used car market of 3,182,000. If we then take 10% of that number to equate to the dealerships that participate we 318,200. We then need to consider that about 40% (being conservative) are equipped with satellite radio. This would bring the potential pool down to 127,200. The next step is applying a 35% take rate to the mix. This would bring potential subscriber additions in Q4 to 44,520 from these deals.
Bear in mind that my spreadsheets for used car data are a work in progress, and I used very similar methodology in Q3 to account for this market. My Q3 projections were too generous. I fully realize that having so many assumptions can create errors in the data, but this type of deal only started impacting this company last quarter, so the error could be anything from a slow start to the program to a bad assumption somewhere, but as stated, we need to start somewhere, and I learn from each quarter as I can analyze the numbers.
Based on all of this I would say that these used cars will bring 44,000 subscribers to the table in Q4. The number might not be as impressive as many want to hear, but every little bit helps. Also bear in mind that Sirius XM gets other subscribers from Certified Pre-Owned deals and people simply becoming subscribers when they buy an equipped car.
In summary, it is great to get excited about the used car deals, but we should not get carried away. What will bring real excitement is that the current deals account for about only 10% of the dealerships, and more and more similar deals will certainly be announced. Used cars equipped with satellite radio are growing more and more as each month passes. This new supply bucket will really help the company in garnering new customers.
Certainly readers will see many people come up with this number or that number. However, very few take the time to pull the data on a consistent basis the way I do. Crunching these numbers takes time and dedication that most simply will not commit to. You can see any number of people saying the quarter will bring hundreds of thousands from here, there, or everywhere, but in the end are they crunching numbers or telling you what they think based on some headline that says sales are great relative to last year? I am not afraid to be wrong, but would rather be right… that is why I crunch these numbers the way I do.
Good report. One that has been needed for a long time.
David Frear in his last appearance at a conference, spoke about how large the number of sat. radio equipped used cars would become.
As was mentioned by me earlier in your new car report, this presents a great opportunity for gifting SiriusXM, or adding a sub. for a family member.
Must be an error, not showing this article on ur site so ill post here.
Ok a few things.
“Malone will act in the best interest of himself and/or shareholders in his company. That best interest may not align with the shareholders of Sirius XM.”
Not if he wants to stay out of court rooms. You see thats why hes in one right now. Legally, no, he CANNOT act in the best interest of HIS STOCKHOLDERS. He is on the Sirius XM board, and ALL HIS VOTES must be in SIRI’s best interests. So ur wrong, ur basically assuming he will violate the law here. Plus what is in his LCAPA’s best interests is in Sirius XM’s best interests. Increase the stock price and reduce the float. No brainer.
Also here.
“Liberty needs an 80% stake to utilize the NOLs. ”
No, they will never use them. What is their Revenue stream for them then? Ill wait ur answer on that one hot shot.
If Malone is not congnizant of the danger of screwing the siri shareholders, he is not as smart as everybody thinks.
I have lifetime Sirius sub and 3 addtional subs and I’m DirectTV subscriber. I think that is a common description of your siri shareholder.
If Liberty gives me the short end of the stick in taking contol of SiriusXm, those 3 subs and the TV subscription are gone. I’m sure those actions would just make me just another face in a very big crowd.
An error? This is an article about the used car channel.
1. Malone is on the board, and matter which pertain to Liberty are matter that he cannot vote on….THUS, He is not acting in the best interest of SIRI shareholders BECAUSE he has no say in matters (at the Sirius XM board table) that pertain to Liberty. He has no say in these matters because he has a responsibility to the Liberty shareholders. This is actually pretty simple stuff that most people are already well aware of. Malone acts in the interest of Liberty. He will act in the best interest of SIRI shareholders on matters that do not involve Liberty. Basic stuff here.
2. LCAPA does not exist anymore. If you were not aware, everything got rolled into one. The new company is Liberty Media Corp and the symbol is LMCA. Liberty is now far different than it was when they took their stake in SIRI a couple years back.
3. Liberty’s interests do not necessarily align with Sirius XM’s interests or the SIRI shareholders interests. Again, pretty basic stuff. In many cases they align, but in instances that are now coming to the forefront they do not.
4. Why you say Liberty would never use the NOL’s if they go to 80% is a questionable assumption on your part. They get revenue from Starz, QVC, the Atlanta Braves, BuySeasons, Zoombak, True Position, etc. You see, with Liberty now rolled up into one, they have many revenue streams. You are aware of how this works I hope
Relmor… don’t be so naieve. Malone can make moves that still would not serve SIRI shareholders’ best interests and do it within the law. He’s a lot smarter than you are, sir. So don’t think he couldn’t figure out a way.
LOL AAHAHAHAHHAHAHAHH
Atlanta Braves..>!!! AAHAHHAHAHAHHA
AHAHAHAHAHAHHAHAH
STarz!! LOL A AHAHAHHAHAHAHHH
Disappear before they could use 1/10th of them.
Relmor…..
Really.
You are so misinformed it is almost funny. You are aware that Malone and Liberty just settled for $136 million with the IRS I hope. That was the tax liability, not the profit that had to be generated to pay the taxes.
You truly are gettiong more and more clueless as the days pass
aahahahhahahha Revenue streams from Liberty……. AHAHHAHAHAHHAHAHAHAHHAHAHAHAHAHAHAHAHHAHAHAHH
Jinging ur dumbest comment ever spencer. That liberty could use up the nol’s in time off their revenue. Your a dreamer arent you. You live in la la land.
If u think Malone wont vote on use of cash, your insane. Why do you think hes on the board? For the free gift basket? Any use of cash vote is not a conflict on interest with Liberty. Your downright batty and losing it more and more I see.
He has a downright batty? Relmor, YOU’RE an idiot.
Not because you don’t understand basic English, but because you consistently demonstrate you know nothing.
So you too think Malone obstains in his vote on use of cash? Please document this opinion in a post please for future reference. No, I think I pretty much understand the facts. The fact that Malone is on the board is to vote on the board on key issues, not obstain. If Sirius XM board agrees to a buyback how is that a conflict of interest? I would love to hear that one explained to me. Please educate the dummy.
Relmor….
You are so crazy about this that you are asking me questions in response to another persons comments. Let’s establish a few things:
1. Please refrain from trying to put words in my mouth you are not intelligent or experienced enough to do this.
2. You can not even figure out where to post your comments. You read an article, then post your disagreement with it under an entirely different article. even a person of below average intelligence can figure that the proper place to comment on an article is where you read it, not something of an entirely different subject. You have now accomplished the feat of cluttering up this article with your outlandish opinion on an entirely different subject.
3. No one….and no one….to be clear, no one stated that Malone could not vote on matters that pertain to cash use. Your imagination is simply being overactive and getting the best of you. All that anyone stated was that Malone has to recuse himself (abstain, not abstain) from matters that involve Liberty. Voting on whether or not to spend $4,000,000 on a new television ad is something Malone can vote on. Voting on a Sirius XM buyout by Liberty is something he must recuse himself. Pretty simple stuff.
4. Now if you want to continue this discourse and lesson, I would suggest that you move to the article that has your panties in a bind and stop cluttering up this article with matters that do not relate to it.
Relmor.. you have shown you know nothing about the history of how John Malone works. He RARELY uses cash in any transaction regarding the buying or selling of any company he owns. He uses shares of stock and clever tax moves that insulate him from ever having to part with any money whatsoever. Do your due diligence man before you become the Mouth That Roared.
Relmor,
Certainly he can vote on matters of cash….so long as the vote does not involve Liberty.
There are certain votes he can participate in and certain votes he cannot participate in. Basic, basic, basic stuff!!!!
You are aware that some of the board members Malone appointed are considered independent I hope. They can vote on any matter.
The use of cash may or may not cause Malone to recuse himself. The man is not an idiot. He knows which votes he can be a part of and which he can’t.
Please stop and save yourself already
You stop, I understand about 1000% times more than you pretend to have forgotten. Your articles are the rantings of a mad man if you set them u side by side. You flip flop more than a dolphin at Sea World.
Relmor….
Clearly you do not understand. You have demonstrated that in the past when you got your panties in a twist over my article about a share buyback of common stock increasing the liberty stake. You went on and on and on and on and on about how wrong I was only to write about that being the case 6 months later.
You simply look more and more foolish each time you open your mouth. Heck, you seem to love to misrepresent anything I say.
There is no vote coming from sirius that pertains to liberty. Not that I can see.
You state, “There is no vote coming from sirius that pertains to liberty. Not that I can see.”
If that is what you believe then why are you getting your panties all in a bunch?
You are flip flopping all over the place and look like a fish on the dock gasping away
Correct, none. They will vote and have input on how sirius uses their cash, correct. Why they are on the board, not to look pretty like you apparently feel why they are on it. Cause it isnt a conflict of interest to vote on how to use their cash. If Malone obstains, then I guess he doesnt have a say in it and they will procede accordingly.
again, you try to put words in my mouth or interprit my thoughts. I told you earlier that you were not intelligent enough or experienced enough to do that. Perhaps the words I used were too big for you, so I will dumb it down:
Do not try to put words into my mouth. You are too dumb to do it.
I do not think, nor have I ever stated that Malone is on the board to look pretty. He is on the board because he carries a large stake in this company.
You are being the worlds largest fool for not understand where and what would constitute a conflict of interest. Use of cash for the course of business is something he can vote on. Large uses of cash is something he has veto power on regardless of what the board thinks. He has veto power on new debt regardless of what the board thinks. He has to abstain from matters that involve Liberty. He does not have to abstain on a decision to spend money to hire Regis to do a Chrismas show. Get it?
By the way, the word is abstain, not obstain
Where is this article relmor is referring to??
here you go:
http://seekingalpha.com/articl.....-sirius-xm
If Liberty is directly involved, they will simple agree to the decision, and obstain from the vote. But how they pay off bonds shouldnt affect liberty in any way, and a buyback isnt something they can prevent with 3 votes either way, regardless of how it affects liberty or not. If the board votes for a buyback, there is nothing liberty can do to prevent it. Not in their current holding situation. Its not something the investment agreement can prevent.
Relmor….
1. Again, the word is abstain not obstain. Why are you being obtuse about this?
2. Liberty has the following veto power regardless of what the board wants:
– the grant or issuance of our equity securities;
– any merger or sale of all or substantially all of our assets;
– any acquisition or disposition of assets other than in the ordinary course of business above certain thresholds;
– the incurrence of debt in amounts greater than a stated threshold;
– engaging in a business different than the business currently conducted by us; and
– amending our certificate of incorporation or by-laws in a manner that materially adversely affects the holders of the preferred stock.
So you see, depending on the amount of cash the company wants to use on a buyback, Liberty could veto it. The same with use of cash to pay off debt. This veto power has nothing to do with the board seats.
Even if SIRI wants to aquire another company it needs to go through Libery in many cases with nothing that even needs to come to a board vote.
Youcan pretend to understand these things all you want, but in the end you simly do not get it
All I know is there is something mighty strange how this stock price keeps gravitating to $1.70 no matter WHAT happens.There is something significant about this price but I can’t figure out what it is.
Back to subs.
Sirius just announced that Mel will be speaking at a Citi Conference on Jan 4. Pretty hard for Mel to avoid releasing actual sub numbers in that environment. Either he meets or doesn’t and can’t avoid a direct answer. I’d be surprised he would even agree to show up if he thought he would miss.
Having said that, even 1.551 million subs is still rounded to 1.6 million, so he might have a little room for a few less.
Spencer… Mel has announced he is speaking at the CITI event Jan 04th. Why else would speak unless to announce that SIRI has met sub numbers of 442k? Or is this a pre-emptive strike? Any theories on what you think might be coming?
He was invited to speak as a keynote speaker. This will be similar to other conferences he has spoken about. He could divulge something, but likely most of the talk will be about the future of the company.
How could you say it won’t be anything significant? It’ll be on Jan. 04th. Logically, wouldn’t it make sense to release news about the Dec subs? If SIRI met 442k subs for Dec and 2011 guidance, isn’t this the time he would announce Spencer? If he doesn’t then that would mean they missed 2011 guidance. Please can you rethink what you posted and answer a little more elaborately? I just don’t understand how you could poo poo this.
Also find it more than a coincidence that he is at a CITI event, CITY upgraded the stock and are allegedly involved in the financing I hear with MS and JPM in regards to brokering any deals that might come up.
No poo-pooing this at all. Mel could say something and I stated such. Remember, this conference is literally 24 hours after a holiday.
The 1st is Sunday
The 2nd is monday (holiday observed)
the 3rd is Tuesday (first full day back
Mel is speaking the 4th.
The discussion will be geared to the future.
Mel could send Frear as he often does. There is a good chance he will start the year with great news. Never underestimate Mel!!! This is what you routinely do, Spencer.
Back to the “used car market”. Spencer, do you have any data from the auto retail “after market” sector that can be applied to your analysis? My thought is if there was a way to extrapolate after market auto satellite radios and apply it to used cars, you could perhaps identify the take rate of the used cars sold “without” a satellite radio. It’s most likely an even smaller negliable number but was curious just the same.