I wanted to expand a bit on the problems that people see with the slowdown in OEM sales. Tyler covered part of it in his weekly radio show (which I got home just in time to hear the last 45 seconds of). He also wrote a piece about the concerns of the OEM side of the Satellite Radio Industry. In his recent article, Tyler points out that HD will likely have a hard time getting into the dashboard of vehicles because of the lack of subsidy. The lack of vehicle sales is of great concern to the Satellite Radio sector, I agree, but I also see the struggles of the OEMs as a positive. How you may ask?
Im glad you asked.
- OEMs are looking to cut costs at every turn. This is obvious. But don’t you think they would also be looking to MAKE money at every turn? I sure would be. OEMs like GM and Ford make a pretty decent amount of money off of the revenue sharing and subsidies. Obviously, they make more money off of it than they put into it, or it would never have been a smart business move. Because of this, they may ramp up installation rates faster than expected to milk out the extra income when they need it most.
- I just purchased a 2008 Chevy Tahoe. The sticker price on that vehicle was 49,000. I negotiated a deal with the dealership for 39,000 and 0% financing. Sure, large vehicles may not be selling well right now because of gas prices, but by getting the Tahoe, I was able to save a significant amount of money, and actually improve my gas mileage over the Chevy Silverado I had previously. A win/win for me. These large vehicles are selling VERY cheap right now, making them more attractive. The large vehicles are the ones that have the best (read: Lowest) churn rates amongst any other.
- While vehicle sales are slipping (plunging?), install rates are still ramping up. Those radios are going to be going somewhere. People that are buying new vehicles now either do not care about the slowdown in economy or are downgrading to save money, either on the car payment itself, or on gas prices. With that savings in money, comes a bit more freedom. With that freedom, perhaps they can spare an extra $12.95 a month for Satellite Radio? The New York Times seems to agree.
- Many of the vehicles that are getting traded in right now are the large gas guzzlers (like my Chevy Silverado). These are the ones that the OEMs first started installing Sirius and XM in. These Satellite Radio equipped vehicles are now hitting the used car lots, and can possibly provide an additional source of subsidy-free income to the SatRad industry. Sure, revshare still has to be paid, but no more subsidy.
- As Tyler mentioned on the radio show, less installs means less radios, means less subsidies. So at least they would still be saving some money.
In conclusion, the OEM meltdown slowdown is definitely something to keep an eye on, but I do not think that it is the doom and gloom some analysts have made it out to be.