Satellite radio garners a lot of subscriptions from the automobile (OEM) channel. In fact, for the past several months, the weaker retail channel has had SDARS sector watchers relying quite heavily on cars equipped with satellite radio as a saving grace for subscriber numbers. Headlines that GM is cutting back production on trucks and SUV's may send some people following Sirius and XM into worry mode.
Two years ago, what is happening at GM would have been very bad news. It was at that point that it was the GM truck and SUV line that made up the bulk of satellite radio installations for XM Satellite Radio. Today, while the news is not good, the impact can be better absorbed. The reason is that GM is now installing XM receivers across more vehicle lines than they were in 2006. The overall penetration is also deeper.
The GM news states that the layoff's and production cuts will mean 88,000 fewer pick-ups and 50,000 fewer SUV's. This means a total of 138,000 less vehicles. If we assume a 75% penetration in the pick-up/SUV segment, then 103,500 fewer XM equipped vehicles will roll off the lines this year. Of that 103,500 about 55,000 were destined to become self paying subscribers. The deeper penetration across more model lines will easilly absorb these types of numbers.
Yes, it does slow down growth. However, it does not represent doom and gloom. Car sales have been down for most auto makers this year. Production cuts are happening. Penetration is also getting deeper though, so the impact will not be felt to the extent that some may anticipate. Specific to the XM, with regard to the GM issue, this is a Q4 and Q3 impact.
Another thing to consider is that the chipsets are still available for GM to install. This means that they may well utilize these radios anyway. XM is a revenue generation deal for GM, and if the chipsets are already there, they might as well conduct the installations. With the types of numbers and the time frame we are talking about, the overall installation number may not change.
It is often easy to assume that bad news such as GM's translates through to the related SDARS partner. Investors need to remember that the chipset orders run well ahead of production, and GM is still installing radios into the vehicles that will continue to be produced. The point to remember is that the OEM channel is still growing, and partners such as GM that share in the revenue gain nothing by letting SDARS receivers sit.
In my opinion, the OEM woes have potential to spill into SDARS if the sales lull is prolonged, but the ramp up that is happening is helping to soften the blows. Cars will still come SDARS equipped, and consumers will still become self paying subscribers. Watch the OEM channel, but measure the news carefully.
Position - Long Sirius, Long XM, No Position GM