December Auto Sales In – Sirius XM Benefits
December 2011 auto sales data are in on the same day Sirius XM announced the addition of about 540,000 net subscribers. The new car sales were a contributing factor to Sirius XM’s success, it appears that the real hero is the used car deals that Sirius XM struck this past summer with thousands of GM and Nissan dealers nationwide.
For December the auto channel sold 1,242,000 vehicles which brought quarterly sales up to nearly 3,257,000, and annual sales to 12,768,000. These are all good numbers for Sirius XM, and ensured that the company would continue to have good numbers quarter after quarter.
There were many interesting facets to car sales in 2011. The auto channel saw substantial impact from natural disasters as well as financial disasters. The method of business shifted, as OEM’s backed away from massive inventories and tried to control incentives. All in all it sets the stage for a more normalized auto sector in 2012.
In Q4 we saw what I call the trailing category continue to gain back share at the expense of the point-of-sale channel. In fact, the market share of the point-of-sale channel fell below 30% for the first time in recent memory. The “balance of power” between the leading, point-of-sale, and trailing categories has not yet fully normalized, but it is approaching that point. Perhaps by mid next year we will see better balance within the space.
For Sirius XM it appears that the story is not new cars, but rather the used car segment. CEO Mel Karmazin spoke to a “significant” contribution from the used car channel just today as a major contributing factor to their announcement of nearly 540,000 subscribers in the quarter, and nearly 1.7 million for the year.
The used car channel actually fits into the trailing category in that the promotional subscriptions are not counted as subscribers during the trial period. It is only after the promotional trial, and if the consumer becomes self-paying, that the subscriber is counted. Companies like CarMax are seeing 45% of their used car inventory equipped with satellite radio, an impressive statistic. While the new car market is filled with data, the used car channel is challenging to assess. In the two quarters since the announcement of thousands of car dealerships offering three month trial subscriptions on any satellite equipped used car, it has been a true task to assess the impact. I swung too high in Q3, and to low in Q4. My worry is that with the advent of more used car deals, it will become even more of a challenge to dial in on the exact impact of the used car market.
The good news is that I have become rather adept at digesting the new car sales and production tracking, and can now begin to assign some reasonable assumptions to the used car market, all while trying to gauge the impact of any new deals the company may announce.
Some interesting points of Q4 auto sales:
- It was the second largest quarter of 2011, only about 20,000 units off of the Q2 performance.
- The leading category sales were nearly identical to Q2, only down by 9,000 units
- The point-of-sale category was off by about 77,000 units vs. Q2
- The trailing category was 70,000 units better in Q4 than in Q2 (good news for Q1 of 2012)
- The leading category accounted 39.71% of the market in Q4, above the 38.93% average for the year
- The point-of-sale category accounted for 29.91% of the market in Q4, down from a 2011 average of 31.16%
- The trailing category accounted for 30.38% of the market in Q4, above the 29.90% for the year
- While still off balance, the categories are getting closer to normal.
With 2012 set to deliver approximately 14 million in car sales we can anticipate a good performance by Sirius XM. The wild card is the used car segment. If Sirius XM can manage to bring on six to 8 new partners in the used car side of the equation, we will definitely have an answer for how this company will grow at a great pace moving forward.
Spence:
It’s certainly hard to gauge the penetration into the used car market. I’ll use myself as an example.
I have a lifetime sub in my 2005 Nissan. I think I can roll it one more time. I have the SR-5 in my dash… not OEM…got it to replace my Orbiter.
So, if I sell/trade my used car… do I get a new subscription? Lifetime? Do I use my SR-5 as a promotional deal for the new car buyer, even if I’m eligible to roll the lifetime sub into a new car?
Either way, every time an existing satrad car owner with a lifetime subscription gets a new car, we could be getting one more subscriber. Can we get our people to engage in groupthink? It might be time to cash out a few shares and get that new car and dump an old radio onto a new generation of used car buyers and give them the sugar to get them hooked!
Agaiin, I’m a shareholder and a BELIEVER in the product. Why wouldn’t I give my lifetime sub away and hook up a new sub in my new car?
Spencer,
If the leading category counts subscribers at the time of production, why then do we list “sales” for the month? Shouldn’t we be concerned with cars “produced”?
pom-pom…..
Production leads sales by a bit. The problem is that not all of the production partners announce their production intents in advance. I do track the production that I can, but the information can sometimes be spotty.
If siri produces simialr results, say, 450K in 2012 Q1, this would be a game changer. This would mean that their investment in sat radio 2.0 and used car market started to work.
The next big event of course is 2011 and Q4 announcement in February. I expect them to beat their 2011 guidance handsomely, in particular, w/r to EBIDTA reaching at least $765M for the year. Of as much importance will be 2012 guidance. There is every reason to believe that Mel will hike all numbers guiding EBIDTA to $900M, revenue to $3.4B and fcf to $750M. The stock may explode as it should.
Spencer,
Since SA is doing censorship, I am posting on your site my response about liberty and its siri’s control.
“I am repeating to you. Going over 50% in ownership in a public company, there has to be an agreement of siri’s board of directors. Otherwise it is a hostile bid where shareholders will have to get involved.
You do not have to be so cock sure. I am more that certain that you do not know what you are talking about.
I have demonstrated time and again that you were wrong on a number of issues, among them.
1. Price increase and its difficulty.
2. Arbitration and its complexity
3. Q4 sub growth and Mel’s statements where I insisted that you should trust Mel more rather than less.
If I were you, I would learn from experience in particular when you were wrong so many times. There is no way Liberty can acquire control without siri’s board or shareholder agreements at the time of the offer.
It is absolutely wrong to state that siri can do nothing and is on the weak side. The company is in the driver’s seat today unlike 2009, and this time Liberty is seeking a deal rather than siri. This gives siri a huge negotiating clout.
Incidentally, any company, just name it, from microsoft to google to facebook to apple, could seek control of siri just like Liberty. This is standard business as long as the price is right and the board agrees.
Moreover, for liberty to get to 50% of siri, they need to buy over 600M shares. This is not an unnoticeable event. They have to notify the SEC, the market will notice and the shares may go up significantly. It may cost liberty a lot of money. Why would they need that when they already have five billion in siri and growing?
Let me give you another perspective. Liberty agrees to a paced shares buyback on condition that siri buys also proportionally (40% to 60%) on the open market. Every time siri reduces the share count, liberty’s next trench goes up. They can take out eventually, to say safely, over $10B. The number may be even much larger.
You keep saying tax avoidance. So, what is better – uncertainty with all these machinations, or leave the company alone and get filthy profits!!!
Siri is going to be a cash machine, and liberty knows that. If they sit tight and let siri make billions, they will benefit in a guaranteed way. Incidentally, you are not saying anything about NOLs. Maffei claimed that NOLs are for siri only. So, it appears that both you and CN are AGAIN WRONG. Mark my word!!!”
I also believe that in a free country to censor non abusive material means that SA is a disgrace!!!
This is totally out of context. How about creating a post in the forums and adding a link to the original article? I agree that SA’s censorship is stupid but, I also think their censorship becoming our problem is even stupider.
Thank you.
VI…..
I can not speak for Seeking Alpha and why they are not publishing your comments.
A couple of points:
1. The board of directors at Sirius XM has already agreed to Liberty going over a 50% stake. It was factored into the original agreement and covered in that IF Liberty desires to go over 49.9% ownership they need to make a tender offer for all shares at a price above the closing price the day before the tender offer is made. In addition Sirius XM had initiated a now expired “poison pill” that included everyone but Liberty. Liberty was specifically named as exempt from the “poison pill”
2. All that Liberty needs to do is make a tender offer. The members of the board without conflicts may recommend that a Liberty offer may not be acceptable, but that would not necessarily stop Liberty from getting a few large shareholders to sell. Would the board be involved if Liberty wants to take such a route? Sure. Could they effectively stop such a move? Not really.
3. The more likely situation is to work out the deal ahead of time with the company and the board. That will or could facilitate a reverse Morris Trust that would ultimately merge the Liberty stake into the existing Sirius XM.
4. The reason Sirius XM is not really in the drivers seat is because they already negotiated away their leverage in 2009. Many people simply do not realize this fact.
5. Now that the poison pill is gone, any company could try something. However, they would have to pretty much go through Liberty in order to do it. This hinders most from even trying.
6. Liberty needs 600 million shares to get to 50%. That is essentially correct. It may cost them $2.50 per share to do it. They have already filed notice to government agencies on the ability to go over 50% and the FTC has already approved.
7. Liberty has already said that they would not be likely to participate in selling any of their stake. I am certain that they would not mind SIRI buying back shares. It helps Liberty gain more share count control on a percentage basis. Liberty’s best move is to get to 50% and conduct an RMT. I have never used the term “tax avoidance”, and have not used it for very specific reasons. tax avoidance is not the proper term for what Liberty may do in an RMT. This is not a difficult process for Liberty, nor for SIRI.
On NOL’s, I have not stated that Liberty wants them or even plans to use them. I have outlined methods by which they could use them if it made sense. I simply outlined the options that are available. I have stated that Liberty is most likely to do the 50% move followed by a RMT. There are indeed ways in which Liberty could use the NOL’s. All I have done was outline various situations that are available to Liberty. How am I wrong? I am not. IF Liberty goes to 80%, they can access and use the NOL’s. That is 100% accurate