The used car market has made up a growing segment of the overall subscriber picture for Sirius XM. This holds especially true with the advent of deals struck with GM and Nissan whereby consumers get a three month trial to Sirius XM on ANY used car sold at participating dealerships, regardless of brand. The reason this type of deal is necessary is that it gives Sirius XM the opportunity to market themselves to the end user of the used car. Sirius XM has no efficient way of knowing who owns a satellite radio equipped car after it leaves the hands of the original owner. Deals like those with GM and Nissan allow Sirius XM to garner contact information, and thus increase the chances of getting a new subscriber.
In 2012 we should be able to look forward to more announcements with other manufacturers from Sirius XM. The more dealerships Sirius XM can get on board, the more valuable the pool of potential becomes. With millions upon millions of satellite equipped cars on the road, it only makes sense to reach out to these consumers. The radios in these cars have already been paid for, but the question is how much additional money to spend in an effort to gain the possibility more subscribers. In 2011 Sirius XM management seemed to hint that the take rate on the GM and Nissan deals was in the "mid 30's". This glimmer of information points to the program being worth while.
There are roughly 20,000 new car dealerships in the United States. The GM and Nissan deals mean that the company has deals with about 10% of those dealerships. This leaves a lot of room for more more announcements in 2012. The beauty of these deals is that they get people exposed to Sirius XM regardless of the brand of car. The uncertainty is the efficiency these dealerships are having in actually ensuring that the consumer is aware that they have a free three month promotional subscription. One thing that sweetens the pot is that dealerships may receive a "spiff" or payment for their time and effort. Some dealerships may view this payment as substantial enough to chase, while others may feel that the time involved in applying for the funds is not worth while. Sirius XM is likely actively crunching numbers on the initial deals with GM and Nissan in order to formulate the cost vs. reward formulation.
At this point there seem to be enough satellite radio equipped cars in the mix to pursue. Last week we saw that CarMax, a national used car dealership, had 30,647 used cars in inventory. Of that total inventory, 13,542 (44%) were satellite radio equipped. This week the inventory level has jumped to 35,614 vehicles, 16,060 (45%) of which have satellite radio.
The used car market will be an interesting one to watch in 2012. The challenge for investors and analysts is building a model that accounts for this growing segment in a realistic manner. With Sirius XM not giving a lot of transparency in the subscriber metric, it becomes more difficult to assess the subscriber picture with new deals being struck. What we know is that Sirius XM adding potential new supply buckets to the subscriber stream is prudent.
As we go into 2012, there is a distinct possibility that this could be the year of the used car for Sirius XM. New car sales are expected to be approaching 14 million, which will provide modest growth for the satellite radio company. getting from modest growth to good growth will fall on the shoulders of the used car market.
SiriusBuzz will continue to monitor the used car channel, and the penetration rate we are seeing in the segment.