Will Cash For Clunkers Boost Sirius XM?
As Sirius XM investors know, one main component of getting new subscribers is through the production and sale of cars that are equipped with satellite radio. With car sales suffering badly for a prolonged period, the issue finally caught up with Sirius XM in Q1 of 2009. It was Q1 where the company reported a decrease in subscribers of 404,000.
As the auto industry continued their struggle, and companies like Chrysler and GM went through bankruptcy, it became clear for many that until there was a substantial change in the pace at which cars were being produced and sold, that the satellite radio company would see lees promotional subscribers coming into the picture.
The Cash For Clunkers program seems like a ray of hope for many, but as with anything, their are pluses and minuses to any issue. Rather than debate the merits of the program, I will focus on what it means to satellite radio, and more specifically, satellite radio investors.
On its face, it would seem that a boost in car sales would mean that the end of the downward trend is approaching. Some have even gone so far as to say that this will mean good numbers in Q3 for satellite radio. A simple formula of 1 million cars with a satellite installation rate of 50% will add to the sub number and reverse the negative trend. Unfortunately, it is not that simple.
Yes, the sale of cars will add to the sub number totals, but one MUST understand that it is not sales alone that matter. For brands such as Chrysler, Ford, and Mercedes, the subscription is gained at production. Functionally, the Cash For Clunkers program is serving to clear out a vehicle inventory that had swelled to massive numbers because of a lack of sales. While sales of GM’s will add to the promotional subscriber line immediately upon the sale, a Ford sale will simply get a radio already counted as a subscriber into the hands of a consumer.
Already, there is discussion that the program is out of funds and may need to be suspended, but only time will tell. UPDATE – It is being reported that the program will continue. The impact to satellite radio will be more of a small boost in promotional subs in the short term, and a more normalized car inventory going forward. It is perhaps a normalized inventory that will carry the most importance to satellite radio and its investors. Stability will allow people to better model the performance of the OEM channel, as well as allow the company to avoid roller coaster movements in metrics which lead to investor uncertainty.
So if we assume that 1 million cars were sold in the program, and 500,000 of them had satellite radio, where does that bring us in very rough terms?
- About 100 to 150K new promotional subscribers.
- The sale of about 100K to 150K cars that were already being counted as promotional subscribers.
- The sale of about 100k to 150k of cars that have uncounted promotional subscriptions.
- Stabilized production and stabilized inventory.
While seeing a boost in promotional subscriptions is a good thing, the issue, in terms of subscriptions, is not as substantial as many think, or would like to think. Normalization of the OEM channel is the most important factor. Normalize the channel, and the metrics will follow suit.
Position – Long Sirius XM, No Position OEM’s
We know that cash for clunkers is going to help siriusXm. Some other information we have from speaking with siriusXm investor relations is that revenue is up, Subs lost is less than Q1 and that about 13 percent of those that downloaded the iphone app either upgraded service or purchased service. I fully believe if this company comes forward and says how close it is to seeing a profit and also adds some guidance for q3 that next thursay we might see this stock back in the .50 to .60 range.
Hopefully Im correct. Alot of positive things are happening right now for siriusXm.
Where did you get the 13 percent for iPhone downloads?
Tyler,thanks for your take.I would be shocked if this program does not continue and would expect it to be funded by not just another billion, but more on the order of billions. Nothing to do w/ Sat. radio just a great stimulus on main street.
The 13 percent number was a number given by siriusXm investor relations.
The type of people it’s attracting to show rooms are being misrepresented in the media. The media thinks that people who own vehicles that qualify are actually people in lower income brackets. My opinion is its attracting people who live with being very money conscience. These people drive their cars long after they are paid off and get their money’s worth out of their vehicles.
My parents are a good example. They have plenty of money but they don’t go out and buy a car every other year. They drive the same vehicle for 10 years and they usually buy a car with cash. They are considering using the program to get a good deal that otherwise they would not. The normal incentives that would entice the normal car buyer do not attract them but 4500 dollar for their 1992 1/2 ton pick-up does. I see this program to be huge success for the automobile industry and for Sirius/XM.
I’ve seen a couple of media reports suggesting the group taking advantage of this program on average have a better credit score than the typical buyer over recent months. Seems they are people that know a good deal when they see it.
Very timely and concise reporting .. thanks Tyler:
I thought I heard a CNBC talking head say that the program was being extended through September but no mention of that in this CNBC news link:
http://www.cnbc.com/id/32235069
also . . dealers are reporting that the “fico” scores being seen on buyers taking advantage of the program are much better than what had been typically seen recently; this goes to someone else’s point above about the “folks” considering jumpin-in.
I can confirm the 13% download iphone app conversion to paying customers as i called to upgrade my own service and the supervisor when asked gave this data. It was as of 6/30 i can only speculate this number has increased since then. Almost everyone i see in nyc has iphone now. A lot more women than men if that means something.
Cash for clunkers will sell more cars than people can even fathom. People who aren’t even using the deal are buying cars because of the frenzy.
Sirius will be through the roof.
Save money on the car, put it towards a subscription for the car. This makes me smile. Hoorah!
To qualify you need to buy a car which gives more gas mileage than
your clunker. Most of them are compact Cars = NO SATRAD Installed in them. Check your local dealer… Will be little help for SIRI.
So far its reported that around 23k cars have been sold in the cash for clunkers program and there is a ton of demand according to dealers for this program. Thats why more money is being approved for this program.
Out of the 23k thus far id doubt even half to be subs.
Every little bit is going to help but clearly this isnt a saving grace either.
Hopefully siriusXm will report on thursday that they are close to being a profitable company as ive said before. if they can report this it should bring the stock up higher and put a smile on all our faces.
How many of you are buying before thursday?
What the autonation guy said on CNBC this morning is that sales have picked up on general interest outside of the CFC deal. He said the confidence is being restored and the people they are seeing come in have high credit ratings and are smart money concious people who have been driving their cars for many years saving money.
there will be a boom from both the CFC deal and the people who have been on the sidelines.
If it is done correctly how can it hurt?
bottom line is that cars only last for so long. People have been holding off for about a year now, so those folks looking to by a car a year ago and held off are getteing desperate now. The wheels are starting to fall off. This was bound to happen, but I didn’t think we would start to see it for another six months or so.
I strongly believe that the Obama amin. & Congress will ramp up this program. They win three fold w/ this program. 1) Gets old low mileage vehicles off the streets (which they are hell bent on). 2) Creates consumer sales & jobs. 3)Shows a direct effort to help main street,instead of just banks & large corps. I other very important element that should be mentioned is that when this program is ramped up it will show consumer confidence. Know this will help Siri directly to some degree but it’s the big picture of the economy in which programs like these will help turn things around. So indirectly if we get some turn around on the economy and everyone wins.