If we learned anything when Sirius XM's (NASDAQ:SIRI) Mel Karmazin announced the subscriber numbers early in January, it was that it is likely the used car market that is finally beginning to pay off. Certainly the company garners the bulk of their subscriptions from the new car market, but the used car market is finally the next catalyst for growth.
During the fourth quarter there was nothing substantial or amazing about the sales and production figures. In fact, the leading (subscribers at production), and point of sale categories were both off from the high-point delivered in Q2 of 2011. In my opinion the big differentiators in the Q4 numbers was born from retention efforts, and used cars deals that are finally delivering meaningful numbers.
Sirius XM has had Certified Pre-Owned (CPO) deals in place for quite some time, but the numbers simply did not move the needle in a substantial way. Now, with between 2,500 and 3,000 GM, Nissan, and Auto Nation dealers bring in unpaid promotional trial subscriptions on any used car (regardless of brand). It is likely that this segment delivered between 60,000 and 80,000 subscribers during the last quarter. Combined with heavy retention efforts, and Sirius XM beat guidance by 100,000 units.
This week, we see the status in the used car channel remaining at about 45% penetration on what I would term as quality used cars. Early on in this process I am using a 1:1 ratio on quality used cars sold for every new car sold. This level of penetration enables Sirius XM to leverage the numbers to work in their favor. No longer is the used car segment an insignificant contributor. While it is still a little too early to determine what part of the success of last quarter is attributable to the used car channel, it is clear by statements made by the company that the used car channel was enough for them to use the term significant.
What we do know is the new car sales and production numbers. Q4 of 2011 did not have the kind of numbers to deliver over 500,000 subscribers. Production levels were modestly lower on the biggest brands when compared to Q2, and point of sales partners were off by some 60,000 units. Yes, production was up year over year, but in tracking the category, note that the average month in 2012 produced 1.12 million while December saw production of 1.02 million (some 100,000 less than the average). The good news is that the used car segment can carry more meaningful growth in 2012 (on a percentage basis) than the new car channel. The consensus on new cars is that 14 million will sell in 2012. That is a nice 10% bump up from 2011. The REAL story is that the used car channel will deliver a second life to satellite radio receivers that might have otherwise been idle. The rise in the used car segment will be the difference maker in each quarter by up to 120,000 units in any given quarter.
Until we can see the quarterly report from Sirius XM, we will not know the exact answer. So far though any reasonable person can see that the used car channel is finally paying off. This bodes well for the balance of 2012. Especially if Sirius XM brings more and more dealerships into the fold.
Position - Long Sirius XM Radio