Earlier today I published an article pointing out that the benefits in terms of subscribers for the Cash For Clunkers were not instantaneous, but rather months away. Instantly I got comments and emails accusing me of being a "buzz Killer" of the positive events in the stock price of the past couple of days.
My article was not intended to be a buzz killer, but rather a piece to temper what seems to be overreaction to the program and what it means to SDARS in the near term. My philosophy is that the program has merits, but that the real benefit comes when the OEM channel is once again normalized. The program right now is serving to normalize inventory levels at the manufacturers, as well as dealer lots. When the inventory levels normalize, production can normalize, and the OEM channel can once again begin on a smoother supply and demand cycle.
One email I received, while garbled in delivery seemed to take me to task, but is actually a perfect example of the irrational thinking that people have regarding the program:
"Oh yes...I would like to weigh in on a bit of negativity I'm hearing regarding cash for clunkers...apparently, it seems to great of a concept to grasp the fact that just because there are X number of cars being sold under the CFC program, there are 3 X as many cars being sold as a result of non-qualified people coming in and buying a new car anyway.."
In fairness, this reader has probably been subjected to the same media hype and auto ads that make the program seem so much bigger than it has been.
The cash for Clunkers program, launched in July, has sold about 185,000 cars through August 5, 2009. This reader obviously feels that Cash for Clunkers is delivering sales above and beyond because of added foot traffic. Sure, other cars are selling, but how substantial is the number? The answer is that the numbers simply are not as substantial as the media would have you believe.
June 2009 sales - 856,670 (down from about 1,250,000 in June of 2008)
Total sales through June 2009 - 4,785,158
July 2009 sales - 994,002 (down from about 1,150,000 in July of 2008)
Total Sales Through July - 5,779,111
Thus July brought a boost in sales of 137,332 cars over June. July is typically weaker than June by about 5%. Realistically speaking, the July number should have been about 813,000 absent the program. Cash for Clunkers stands at 185,000 cars. If we add the 185,000 from the program to what would have been typical sales, we arrive at 998,000 (pretty darn close to what actually sold). In realistic terms, we can attribute success in the Cash for Clunkers program as erasing a typical dip in July, and accomplishing a boost in and of itself for program cars. However, if we were to remove the Cash for Clunkers program, sales were no different than what would have been expected. Thus, 185,000 additional cars sold, and my original article broke down when those additional 185,000 vehicles would hit the subscriber pool of Sirius XM (Q3 and Q4).
Cash For Clunkers By Manufacturer Through August 5, 2009
NOTE: Assume a penetration rate of 40% and Take rate of 40% due to type of cars being sold. Some manufacturers have much deeper installations, but to keep it simple I am assigning overall assumptions.
GM - 18.7% - 34,595 cars - 13,838 sat. equipped as subs in Q3 - 5,535 will become self pay in Q4
Toyota - 17.9% - 33,115 cars - 5,298 will become self pay sub in Q4
Ford - 16.0% - 29,600 cars - 11,840 sat. equipped already counted as a sub in Q1 or Q2 - 4,736 will become self pay in Q1 or Q2 2010.
Honda - 11.6% - 21,460 cars - 8,584 sat. equipped subs in Q3 - 3,433 will become self pay in Q4.
Chrysler - 10.6% - 19,610 cars - 7,844 sat. equipped already counted as subs in Q1 - 3,137 will become self pay in Q3 of 2010.
Nissan - 7.0% - 12,950 cars - 2,072 will become self pay subs in Q4.
Hyundai - 6.6% - 12,210 cars - 1,953 will become self pay in Q4
Kia - 3.8% - 7, 030 cars - 1,124 will become self pay in Q4
Mazda - 2.3% - 4,255 cars - 1,702 sat equipped already counted in Q1 or Q2. 680 will become self pay in Q4
Subaru - 2.2% - 4,070 cars - 651 sat equipped cars will become self pay in Q4
Volkswagen - 1.9% - 3515 cars - 1,406 already counted as subs in Q1 or Q2 - 562 will become self pay in Q4
Suzuki - 0.4%
MINI - 0.3%
Mitsubishi - 0.3%
Smart - 0.2%
Volvo - 0.1%
All Other - 0.1%
As you can see, the program helps, but the numbers are not huge, and are spread out over several quarters. If the Cash For Clunkers program continues, then the numbers will obviously be bigger. The key is whether or not the Cash For Clunkers can serve to stabilize supply and demand, and spark additional sales. At this point, sales outside of the program are as expected.
Having followed this equity for quite some time I have seen all to often the reactions of passionate investors to certain types of news. I have fallen into the trap myself and have learned from the process. This isn't about being a buzz killer, or seeing the glass half empty. It is about looking at real numbers and applying realistic expectations. A stock run up is great, but it is so much better when it runs up on good and solid metrics instead of wishful thinking. The important factor here is a stable supply and demand scenario, not the 40,000 or so subs that will become real over the next several months. An interesting note is that Michigan leads the way with $44,000,000 in requested vouchers and 45% of the cars sold in the program are from the "big three".
Position - Long Sirius XM Radio - No Position OEM's