What GM and Chryslers Woes Mean to Sirius XM
GM is closing plants, and it is speculated that Gietner will put Chrysler into bankruptcy as early as next week. Bad news from the OEM channel typically means bad news for Sirius XM. After all, the bulk of subscribers for satellite radio are delivered via the OEM channel. Thinking a bit deeper, GM and Chrysler woes may actually be somewhat of a blessing in disguise for Sirius XM Radio.
Now for clarity sake, I am not saying that thousands losing their livelihood should be celebrated by those invested in SDARS. I feel bad for those that will be impacted by this whole mess, but in the end, I must look at what is happening in the OEM channel from a business perspective.
It is no secret that the GM deal is was and is an expensive deal for satellite radio. The Chrysler and Ford deals are also expensive. These are the deals that carry larger installation subsidies, and carry large revenue share agreements.
A slow down in production, and fewer installations by OEM partners that are more costly to SDARS means that the vacuum left by GM and Chrysler will need to be filled by other auto manufacturers. This translates to a larger mix of installations that do not carry heavy revenue share deals. For satellite radio, this means that they get to keep more of the revenue from subscribers. This change will not be instantaneous. It will take time to flow into the metrics, but in the end, the more money that SDARS gets to keep, the better.
Now, the other consideration is that while the company is keeping more money, will other OEM partners step up in SDARS installations to a point where it can be material to Sirius XM Radio? For years, I tracked vehicle sales and estimated how production and sales translated to subscribers. That exercise has become more difficult because of the merger, as well as the fact that OEM sales have been decimated. The “constants” that once existed simply no longer exist in such a way that the data can deliver anything meaningful. OEM sales are down across the board. the main question is where installation rates are with each respective partner, and what the average revenue from OEM subs is now and will become in the coming quarters.
For now, Sirius XM should be able to realize some savings on installations. This will be the more immediate metric that investors will see changing. The real potential in the revenue share averages will take time to come to fruition, but if GM and Chrysler wind up being substantially downsized, two of the bigger OEM deals in SDARS will be contributing less to the cost side of the OEM channel.
Investors in Sirius XM would be well served to monitor ARPU, SAC, as well as CPGA in the coming quarters to see how these numbers are trending. Even if the subscriber numbers suffer, positive news on these metrics can demonstrate the effectiveness of the company in getting to profits.
The OEM channel as we once knew it no longer exists. Investors, if they have not already done so, need to rethink how deals such as GM and Chrysler impact satellite radio. If the car buying public shifts to other brands, the metrics of the OEM channel as it relates to SDARS will need to be re-thought.
Car sales are important. Getting new subscribers exposed to the service is important, but what is most important is how the revenues from subscribers in this channel get to the bottom line, and how much cost is associated with making that happen.
Position – Long Sirius XM, No Position OEM’s
Chrysler and GM woes will not affect Sirius XM because revenue is not based solely on automakers. Sirius can be installed in any automobile wether new or old, it just depends on what the consumer wants. One thing forsure all vehicles must come with a Radio. A matter of fact what car does not come with a Radio especially if the automobile wants to sell? Chrysler and GM vehicles sales has not been the best in years, therfor judging Sirius success based on GM and Chrysler is compeletly insane. Sirius can be in your automobile,online or in your home entertainment. Sirius is great because USB,Flash,Memory,and Ipod hook-ups can cause automobile accidents due to toyin with the hook-ups. Sirius eliminates that risk and hassle. By the way who want to listen to the same 30 song playlist played everyday on the regular radio stations with tons of commercials.
I’m all for higher profits for Sirius. The concern that I have is that the car manufacturers might no longer automatically include a satrad receiver in the car at no extra cost. I noticed that Toyota no longer does that and that the purchaser must pony up an extra $495 for a satrad capable receiver. That extra charge may in these tough economic times result in the purchaser not getting satrad in his new car. If it’s automatically in there, then there’s a 50% chance that they will extend the contract after the complimentary contract is over. Somebody has to pay for that OEM receiver.
I have been to 3 dealerships in the last week. Sirius is nearly a “must have” on the vehicle.
I witnessed 2 vehicle sales, both buyers were excited about sirius in their new cars.
After experiencing a “built in” sat rad, I was looking for that as an option and was prepared to pony up for another subscription (currently own the xmp3)
My wife is searching also, and one criteria is the car must have built in sat rad.
Sorry Bubba, no dice.
You can’t have it both ways.
You can’t say Sirius-XM will be doing better with an ‘improving economy’ and then say they’ll do better because the auto OEM channel that sold the majority of subscriptions has dried up.
Either OEM arrangements make a profit or they don’t.
PROFIT is what makes a company stronger.
Savings is can only be counted as a plus when you are making a profit.
Saving for survival is something different.
This isn’t what is happening.
Since Sirius-XM has never made a profit on these OEM arrangements, claiming that they are actually saving anything because the OEMs aren’t selling is the most specious kind of tripe.
If the OEM’s aren’t selling subs, there is ZERO savings that can be legitimately counted as cost saving.
What is really happening are LOST SALES.
Not a good thing for the bottom line no matter how you spin it.
Tim….
It seems that tyou are hell bent in disagreeing with anything I say. That is fine, but the danger in that for you is that if what I am saying is based on facts, and you decide to disagree anyway, you lose credibility.
In this latest comment you are comparing apples and oranges. What I wrote has nothing to do with having it both ways. SDARS will improve as the economy does. I would hope that if you are going to disagree that you would put some points in for readers to consider.
You say, “either OEM arrangements make a proif or they don’t”. A simple statement, but not anywhere near what I am talking about. First, not all OEM deals are the same. Some require higer subsidies, some pay higher revenue shares. Again, these are FACTS. Some will be profitable faster than others, and some may not generate a profit for quite some time (if ever).
Now, lets be clear, and keep things simple. It is true that the OEM arrangements have never made a profit. It could be argued that the retail channel has not delivered a profit either. After all, the company has never shown itself to be an ongoing profitable concern.
You say that savings can only be counted when you are making a profit. MAJOR ERROR IN JUDGEMENT. Savings are exactly what will help this company get to profits. The company (ANY COMPANY) can not simply spend like drunken sailors.
Now, when I refer to the bottom line I am referring how much money gets down to that level, or how much less the loss is.
The GM deal has never been a profit machine. In point of fact, it has cost SDARS a ton of money. If GM was responsible for 30% of all cars sold, and they were installing at a 45% clip, what happens when GM’s numbers change in a dramatic fashion?
If suddenly GM accounts for only 20% of all cars sold, and other OEM’s with less expensive deals are picking up the slack, then the recipe has changed in such a way that more money will trivckle down. Further, not all companies get a revenue share. If Toyota, Nissan, and Hyundai becomes a bigger players in SDARS, and these companies fill most of the void in GM and Chryslers woes, the net impact on revenue share for SDARS is huge. A GM sub delivers about $5 per month. A Chrysler sub delivers about $5.50 to $6. Toyota, Nissan, and Hyundai subs deliver $12.95.
So, going forward I would suggest that you not be so quick in your retorts. It does not help the readers, and does not help your cause (whatever that cause may be). I don’t mind at all if you disagree, but please consider putting in WHY you feel I am wrong with supporting documentation. Otherwise you are coming off as a simple heckler.
Cheers
Tyler,
If you would learn to read and comprehend, you would see that I explained in detail why I disagreed with your ‘analysis’.
Your statement about other OEM picking up the GM slack is a complete wish.
You have ZERO data to back that up.
The fact is ALL the OEM arrangements have ALWAYS been losers toward the bottom line.
You would do well to mention that.
Well in fact over the last 50 years GM has lost about 1/2 of its market share, and low and behold, that lost market share was picked up by others. Up until the latest recession, the car market actully increased total annual volumes as GM share declined.
Those are the facts.
Now the speculation (based on historical evidence). If GM loses more share over coming years, others will replace it and as long as the U.S. continues to grow and as long as the prime mode of transportation is motor vehicles, the car industry will return to more normal levels.
And that guaranties that Sirius-XM will have a profitable relationship with the other car markers that fight over what’s left of the market?
Please…
The fact is the auto market has contracted this year like all other finished goods.
Any auto company will demand even more concessions, not less.
Sirius-XM is in no position to dictate terms to anyone let alone the car makers.
The idea that the OEM market will be better for them in the future is wishful thinking.
Are we talking about subscribers or really about how news affects the SIRI stock price? The perception is that it is bad news for the stock price when we see the headlines of Chysler and GM going bankrupt. Glorified by “breaking news” from the WSJ or NYTimes. When it’s not news at all.
What’s more important with the CH11’s is what happens to the dealer network. Dealers had filled their lots with mix and match options. The red cars have SIRI and the blue ones don’t.
If the dealers do away with new cars and stick to just Used, then the ordering will be done online and the customers will be designing their own models to be delivered (Re:preorder the new Camaro’s) Siri now has to go local, to influence the group dealers. Luxury models will still get the SIRI, and most of them are foreign anyways. The costs are still rolled in and spread across 48-60 months.
Its pretty simple to understand actually. One of the main reasons Sirius XM hasn’t produced positive cash flow yet is that there are upfront Subscriber Acquisition Costs (SAC) related to those auto installations. Lower installations, means near term improvement in cash flow, longer term that’s less cash flow.
Howeever, the GM deal is particularly expensive, such that that future cash flow from their installation is largely absorbed by GM revenue sharing.
One has to believe that once the disruption in GM and Chrysler reorganizations is absorbed and their market shares decline, their market share will be replaced by others. GS just said Ford would be one of the beneficiaries, but most of GM’s and Chrysler market share likely will go to overseas companies such as Toyota, Nissan and Honda, as well as the Koreans.
All of these overseas manufacturers have significantly less expensive deals with Sirius XM. That will benefit Sirius XM in the future.
Thus good in the short term and long term. Yes, you can have it both ways. Just have to think about it a little deeper than you did.
I know nothing regarding OEM’s or any other technical jibberish I see discussed. Sometimes I think it’s a bunch of blow hards trying to impress each other with a few technical terms they each know. The bottom line is this in my opinion, Sirius is here to stay by who ever owns the company. No doubt it came close to extinction but someone with cash and the foresight into the future saw a good deal looking them in the face. Subscription radio can and will make it whether its a paid option when purchasing a car or not. It’s no different than upgrading from cloth seats to leather.
We wouldn’t be having this conversation if Mel would have supported the iPhone application. If I went into a dealer today, the only thing I would want is an audio input, or bluetooth. Consumers want it all… but, they don’t want to spend extra cash on a device that they can’t take with them. The bottom line is that Mel has NOT done his job and needs to go ASAP. His “plan” has backfired and he is now left with 2 failing companies with no way to merge them. It is absolutely stupid to think that a consumer – still needs to choose between Sirius and Xm. My advice, get an HD Radio, with audio input, or bluetooth. Then pick up an Xmp3 player. It makes more sense to have one subscription that you can take with you wherever you go, instead of paying for multiple subs.
Sirius is portable as well.
Ford just came out with better then expected earnings, revenues way higher then expected, and announced 25% production boost for 2nd Q–thats positive at least for one of the OEMs
“getting new subscribers exposed to the service is important….”
I take no pleasure in informing you Mr. Savery but don’t count on word of mouth from “core” subscribers as a way to get potential subscribers to pay scarce bucks for a service that has declined in quality & programming since the merger.
I can’t endorse Sat Rad near as enthusiasticly since the merger. I have to be honest which is something we’re not geting from Mel & his cohorts.
I second that.
I recently had to replace my Sanyo SatRad/Boombox unit.
I order a brand new Soloist and Stratus from TSS Radio.
I call Sirius and they inform me it’s now $15.00 to transfer a subscription to a new unit.
Mind you, I’m a 5 year subscriber and I pay a year in advance.
I go round and round with 2 different ‘Customer Service’ reps and they refuse to waive the charge.
I say ‘Fine, transfer me to billing please’.
I explain the situation to the rep with billing what has just happened and that I want to stop the auto-renew on my subs and that they have lost me as a customer when my subs are up.
I managed to find a rep with half a brain who immediately waived the charges, apologized for the other two reps and let me know about an offer that Sirius does NOT advertise.
Because I was one of the early subscribers and I’ve had multiple subs the entire time, they would allow me to upgrade to lifetime subs, at a significantly reduced rate and give me credit for the full payment of each of my current subs.
I was floored.
I thanked the gentleman, got his direct extension and let him know I’ll be calling back when I make a decision on this.
My question for Sirius is why aren’t the GOOD reps, like the one I had, being used for the first line of defense instead of putting out fires created by other reps?
Word of my is the best advertising but the quality of customer service at Sirius is the last thing Sirius wants to be spreading that way.
Mel Karmazin, ARE YOU LISTENING???!!!!
Damned typos, should be word of mouth.
BTW,
TSS Radio actually sent me a handwritten postcard thanking me for my purchase.
It’s scary to think how much better TSS Radio is at handling customers.
Hey Mel, Are you listening?
First of all, let me say that I normally agree with the views on this blog-site….after all, I’m long SIRI and also a subscriber since Howard joined in 1/09/06. However, I fail to see how this rationale is based on anything other than pure speculation. How can one project how the negotiations will pan out for Sirius / XM…and which party will have the upper hand. From my business, sense, it seems to me that if anything, the auto manufacturers will be looking for greater concessions from OEM vendors in the future, not less. Also, because it is an absolute necessity for SIRI to land these agreements, they will be offering everything under the sun to be certain that an alternative vendor / technology does not supercede them.
How you came up with the opposite scenario really must be explained better.
Outside of this, keep it up! I enjoy your thoughts and appreciate your hard work.
This whole idea that closing capacity is a good thing because it saves you money is crazy. If Sirius will be better off with lower OEM subs, why not just stop doing OEM ? Even better, stop doing business all together, that would save a ton of money!
Also, there is no guarantee that the slack will be “filled by other auto manufacturers.” The market contracts, less cars are sold, less subscriptions are made.
Finally, bankruptcy of the auto company will most likely spook the market and might panic the general public causing even worst market conditions.
Exactly my point!
Sorry Tyler,
Your ‘analysis’ is fundamentally flawed.
Without spinning anything here… the fact is that each radio installed is an immediate cost (loss) to the company with a business model that projects a (gain) in the future…. With 19M subscribers currently, if they could maintain neutral churn, that would in fact improve their short term cash flow…. They are now receiving the benefit of investments made earlier… and if their mix and penetration were to change to contracts with OEMs more favorable to the bottom line, Tyler’s premise is not so crazy…. It is the difference between truly understanding the business model as Tyler does, and your and Tim’s sophomoric understanding of it….
Nothing sophomoric about it.
His ‘analysis’ IS flawed.
It is also devoid of logic.
Tyler, thanks for the article and many have discussed this scenario before…. The good news for Sirius Xm Radio is that they have agreements with all of the OEM manufacturers, some a better margin for them than others…. The fact is, that having a guaranteed place in the dashboard is what has guaranteed their survival…. Most don’t realize that each OEM contract has a “turn around” time on their investment before money actually flows to the bottom line,…. rev share, chip subsidy to the OEM, discounts all impact that turnaround time, etc… Maybe if you broke that down by OEM more people could follow what your trying to say…
Each radio installed, whether turned on or not, comes at an investment cost to Sirius Xm radio…. It takes time for that Cost to be recouped, and with GM it takes longer… the rest is fairly simple math… less GM subs (lost market share) to a better margined OEM agreement, means more dollars to the bottom line (increased FCF for SXM)… Let’s face it though, this is a fine “silver lining” in a dismal OEM market….
There’s ZERO money to the bottom line as these OEM relationships have NEVER made a profit.
Keep posting Tim. LOL. NEVER made a profit. Good one. Too funny. Financial genius. Intelligence distributor.
NEVER made a profit. Damn it. Why didn’t someone tell me that in the first damn place.
That guy over at Liberty should have called you before putting his companies future in Sirius’ hands……………………………………
Tim…..
There is a point where an OEM sub does become profitable if they are in the mix long enough.
Ask yourself if the company would rather have a Toyota sub or a GM sub. I think you know the answer.
The GM deal was the first. It was based on XM having commercials and ad revenue. This is why XM was willing to give up a high revenue share. XM was planning on making up the high cost of the deal in advertising sales. the ad based model never played out, and thus XM was stuck with the terms of the original deal. Thankfully, GM’s revenue share is based on a percentage of $10. Thus, when XM went to $12.95, that addition $2.95 was not shared with GM.
GM got the ball rolling, and a pretty penny was given up by XM to make that happen. No one can argue that GM subs are quite expensive. No one can argue that having more subs come from other OEM’s will benefit the bottom line (whether as profit or as a smaller loss).
There was a huge learning curve in SDARS, and as time passed, OEM deals became more and more SDARS friendly.
With the GM deal expiring soon, and companies such as Toyota tied up to near the end of the decade, how do you think that will impact negotiations with GM? Time will tell, as well as market share, etc.
Sometimes people think too deeply, sometimes not deeply enough. This article was not about immediate returns to the company, but a look at what may transpire going forward.
Cheers
———-
There is a point where an OEM sub does become profitable if they are in the mix long enough.
———-
Perhaps
If that’s the case how about some real analysis of these OEM deals.
ALL the radios that Sirius sells are manufactured with subsidies paid to the manufacturers.
That information comes directly from Mel K’s testimony before Congress.
The fact is the Sirius-XM business model is fundamentally flawed.
They have never made a profit.
None of these OEM arrangements has ever generated a profit in and of themselves let alone led to a gross profit for the company.
When a small businessman does that for more than 3 years the IRS tells you your activity is classified as a hobby.
How about giving some hard numbers instead of trying to pass off your OPINIONS as verifiable truth?
Either back up your opinions made out of whole cloth with some real data or stop passing yourself off as someone who actually knows something about SatRad as a business.
Tyler
Please write an article about the different OEM contracts that SXM has with the different auto companies. If you have the length of each contract, that would be helpful, as well as costs associated with each contract, and finally, approx length of time before sub from a auto company becomes profitable for SXM. Hopefully, that will shut up the negative poster on this blog. You and I are not allowed to have our opinions, but he is allowed his!!!!!
Tyler,
Serious question.
Why do you feel compelled to only post rose-colored views of Sirius-XM issues?
Why is there no critical analysis of anything that Sirius-XM management is cleary doing wrong?
I find it incredible that you can’t write a single article that points out any possible downside for Sirius-XM.
Tim, you do seem to be a very negative person by nature. Tyler has been critical of Sirius Xm but more in a questioning way. If I had to bet and you had a favorite sports team that you followed you probably are always frustrated on why they don’t do things the way you think they should and not that there is anything wrong with doing that. But there is a limit or you will drive yourself insane. Tyler, Brandon & Charles are not privy to inside information. Mel doesn’t discuss the inter workings of the company with them let alone the public. Just like in sports, we can only assume what management is thinking and we all have our theories. Not much difference from figuring out Wall Street to sport franchises. We are all too some (most) degree on the outside looking in. I’m not saying that I’m not critical at times, but if I hated what was going on to the point you do I’d get rid of my Sat Radio and sell my shares.
Neal,
You would be incorrect.
I am someone who demands that companies I do business with provide the service they advertise and that they stick to their agreements.
We all purchased Sirius-XM because we were tired of the dead AM/FM radio.
I want Sirius-XM to succeed but I won’t give them a free pass when they screw up time and time again.
When will anyone who writes articles for SiriusBuzz start dealing with the HORRENDOUS customer service?
How about the LOUSY repeater distribution?
XM users don’t have anywhere near the reception issues that Sirius users do.
They have a portable unit that works FAR better than any of the Stiletto units.
There is already an XM Blackberry app.
Where the hell is commentary about these issues?
The silence from Sirius-XM management regarding these things is deafening.
That speaks volumes about how Mel feels about the customers who pay his inflated and undeserved salary.
Sirius-XM has a chance to come back from the brink.
Is it unreasonable to expect that they make some kind of statement regarding the loyal customers who have kept them afloat?
Is it unreasonable to expect that they publicly address hardware and software issues?
Is it unreasonable to expect that they publicly address poor and declining customer service?
The problem with your rant is that you started with your opinion on Tyler’s article with an all or nothing assessment of the OEM channel (either profitable or not), renaming Tyler to “Bubba”, creating the axiom that savings only counts when your making a profit, and that saving for survival is something else.
Then you refuse to acknowledge that in a competitive marketplace that is the US Auto Industry, that one company’s woes aren’t the others gain (shifting market share)and that for SXM this can be advantageous…
After refusing to concede any points we then have to listen to your laundry list of complaints about what the company has done wrong to you and to the general marketplace and for that they will fail…
After then succeeding in insulting everyone on the board who appears to be in opposition to your view, you insult Tyler again, and wish us all bodily harm by spinning around on some hot object….
You threaten us all that you may never post here again…. but, alas, I doubt that you can live up to your words…
This site needs an ignore feature. I’m looking in your direction Markoski – you wind bag.
Fsir Enough.
I won’t waste my time here anymore.
This is my last post.
It’s obvious this place is only for cheerleaders and fan boys.
Now please feel free to go sit on a red-hot poker and rotate.
I bet the sissy bitch Tim posts again…10-1 odds being offered.
Enough is enough Timmy; just go to a site where your unique personality will be fully appreciated….or just talk satrad at your next anger management class.
I think Tim works for the FCC.