December Auto Sales Shaping Up For Good Month – What Does It Mean For Sirius XM
Typically, any time we see an average of over 1,000,000 sales in a month it bodes well for Sirius XM. That type of sales volume means that production as well as sales is happening at a pace that allows the company to report decent numbers across the board. As time passes, we will need to adjust that average to 1,100,000. The good news is that Q4 seems to be on a pace to get near that level.
As we look at the auto sector it is important to understand that differing manufactures contribute to Sirius XM in differing ways. We need to look at Q3 sales, Q4 sales, and Q4 production to paint a picture. For Sirius XM to meet their subscriber guidance of 1.6 million for the year , they need to get 442,000 subscribers.
At this point there is a natural tendency to look at Q2, when Sirius XM reported over 450,000 subscribers, with the thinking that if auto sales are similar in both quarters that Sirius XM will dish out similar results. This thought process is slightly flawed for a few reasons. One major reason is that in Q2 the company saw an artificial boost in the subscriber number due to the disaster in Japan, and the mix of manufacturers that contributed.
Taking the next step to dig deeper, let’s look at Q2 as compared to Q4. Contributing factors in the Q2 subscriber nembers were Q1 sales from the “trailing” category, Q2 production from the “leading” category, and Q2 sales from the “point-of-sale” category:
- Q1 sales from the “trailing” category – 966,000
- Q2 production from the big players (Ford and Chrysler) – 1,228,233
- Q2 sales from the “point-of-sale category – 1,049,645
This combination in the auto channel helped the company deliver over 450,000 subscribers. Now to look at Q4, which again, counts Q3 from the “trailing” category, Q4 from the “leading ” category, and Q4 sales from the “point-of sale” category.
- Q3 sales from the “trailing” category – 943-260
- Q4 production from the “leading” category – 1,214,000 (Ford announced production of 674,000 and I am assigning 540,000 to Chrysler)
- Q4 sales from the “point-of sale” category – 885,975 (assumes the 5% pop for GM, the 5% drop from Honda, and the 7% drop from the other manufacturers as outlined in the Edmunds.com article)
As you can see there are some distinct differences between in mix between Q2 and Q4. This needs to be considered closely, rather than simply looking at the similarity in the sales totals:
- Q2 provided a better contribution from the trailing category by 23,000 units
- Q2 provided better production numbers than Q4 (using the two biggest contributors) by 14,000 units
- Q2 provided better numbers from the “point-of-sale” category by 163,670 units
As you can see, the mix in Q2 was more favorable across the board, and in the important category of “point-of-sale” the spread is substantial. This is where my research pays off. Long ago I outlined that Sirius XM got an artificial boost in Q2 because of the mix of sales and production created by the disaster in Japan at the end of Q1. I have stated many times that the boost we saw in Q2 would be offset by a dip in Q3. At the time I had many that were critical of my research for one reason or another. In most cases those that were critical were neglecting to look at the data. I have now come under fire again for stating that the sales figures in Q4 were going to make it a challenge for Sirius XM to meet the 1.6 million subscriber guidance. Never did I say that they would not hit it, what I expressed was that hitting the number would be a challenge, and that the company would have to come up with some improvements in retention, churn, and take rate to get there. Given the data above, it should be clear that some challenges will exist. Further, it should be clear that Q2 had superior conditions in the mix that are not present in Q4.
On the positive front, a December auto sales number approaching 1.3 million really helps out the process of the company getting to guidance. I still believe that there are challenges for many reasons, but that concern will be alleviated slightly if December can bring in the nearly 1.3 million Edmunds is projecting.
With Sirius XM many investors tend to believe that CEO Mel Karmazin typically “under-promises” and “over-delivers”. He stated earlier this year that Sirius XM would “hit it out of the park” in 2011. I would consider over-delivery and hitting it out of the park for this company to be at 1.7 million with all other metrics being met and showing the expected amount of growth. If the company delivers 1.65 million for 2011 they will indeed beat guidance on that metric. The question is what they had to do to get there. If they had to offer steep discounts and impact ARPU (Average Revenue Per User), I would not call that over-delivering or hitting it out of the park. Thus my assessment that hitting guidance would be a challenge.
I have had some say that I totally ignored production in getting to my estimates. I can say with utmost confidence that I NEVER ignore production, nor any aspect of the auto sector as it relates to Sirius XM. If we consider that deactivations will be higher in Q4 than in previous quarters, it will take gross additions of a higher number to deliver similar results. Those problems still exist and deserve attention. Deactivated subscribers will be at least 100,000 higher than in Q2 (the comparison quarter). Gross additions in Q2 were 2.179 million. With sales being similar between the two quarters, the OEM channel will not likely deliver more gross additions. This means that the number needs to be made up in retail, retention, less churn, and a more successful take rate.
It will be interesting to see how December sales pan out. Stay tuned.
Encouraging news!
Spencer, excellent analysis of the data for 2011 in anticipation of Q4 results. That said, where does new subscriptions fit in for the “used car” market? I’ve seen a lot of promotions for certified used car programs but did not see anything in your analysis that addresses this segment and its contribution. Therefore, i would like to hear your thoughts on this plus what you expect out of new 2.0 internet subscriptions. I know you included “retail” but does that include third party vendor and after market radios only or does it also include internet subscriptions? Just trying to understand the complete picture from your perspective.
Alex…..
the CPO program is not a huge driver, but does contribute.
The used car programs are in their infancy, and fit into the trailing category. GM has about 2,000 participating dealers. All cars in this program sold in Q4 will not be subs in Q4. They will be potential subs in Q1 of next year.
Thus we need to look at Q3 used car sales to try to determine the contribution.
A few assumptions:
1. Used cars sell at a rate of 4.5 used for every new.
2. A percentage of those used cars sold are much older and private party. Lets assume that “quality’ used match new car sales.
3. So with 3,182,000 new cars sold in Q3, we can assume that 3,182,000 used cars sold.
4. Lets assume that participating GM dealerships account for 10% of those used cars sold.
5. That would mean that participating GM dealers sold 318,200 cars sold
6. Using Carmax we can garner that about 40% are satellite equipped.
7. That would mean that 127,000 cars had Sirius XM and were sold by participating GM dealers.
8. Now that would mean there will be a potential 127,000 subs coming due in Q4.
9. Karmazin says that the take rate is about 35%.
10. This would deliver 44,520 subs in Q4.
I went through this same exercise and used very similar assumptions when I was analyzing Q3. I gave the used car market too much credit, and thus blew my sub projection. Knowing that we are now three months later, I find it hard to nail down good assumptions. However, the bottom line is that the used car market should deliver between 30,000 and 45,000 in Q4. It helps, but does not send things over the top as yet.
As for satellite radio 2.0……It is not a material mover at this point. Retail includes anything other than OEM.
OK, thanks for the quick response. I was curious about 2.0 due to the recent software update released on December 10th for iPads and iPhones for streaming.
I would say the very good tv commercial SiriusXM is running, with lots of frequency, is primarily directed at the owners of those with dormant sat. radios in their cars.
When retail was big, lots of boomboxes, etc. were gifted to people at Christmas. The other day, I talked to a fellow who, as a Christmas present, was buying his adult daughter a two year sub for the used car she recently purchased.
Good idea! One that should be promoted.
He’s waiting for someone else to produce these numbers you inquire about,hell, you think this clown really does any research of his own, he just takes what is out there, changes a few words here and there and puts it up here and pray for clicks. But that’s just my opinion.
sclem….
How wrong you are. But then again, we can expect that from you.
This entire article is based on my own research, with the only “supplied” numbers being that which Edmunds has projected for December auto sales.
Look around on the web and find me anyone who even comes close to breaking down the auto sector the way I do. You wont find it.
I have never seen those numbers “out there”. Where is this “out there” place that you speak of?
We all know the old saying, “Opinions are like A#* H$@#s, everyone has one.”
Stuart….
Where are you getting “out there” from?
sclem’s comment above. He said you just take what is “out there.” Stuart is asking him to provide a link to the article you are being accused of ripping off.
Once again, a very nice article on autos, Spencer. I appreciate your continuing dd on the auto numbers and the impact on SXM sub numbers. Not to say you are always right, but I have found no one else on the web that comes anywhere close to doing the in depth analysis that you attempt here. Also, your comment above on CPOs is excellent and is a real wild card going forward imho and I look for it to continue to grow significantly with each passing quarter. Thanks again for sharing your growing expertise in this all important area.
spence what if churn came in @ 1.75/1.8 wouldn’t that help hit those numbers. also maybe used car market could come in higher mel and co.seem awful confident.
fraz….
Lower churn will certainly help, but remember, we will see at least 1,850,000 deactivated this quarter, and that is with a churn rate at 1.8%. That means gross additions need to be at 2.3 million or higher to hit guidance. In Q2 gross additions were 2.179 million. we need an improvement of at least 121,000 more than Q2.
The only way to garner more gross additions is from getting new subs in one form or another.
spence do u think they will make the #’s yes or no????
Spnecer,
The claim of plagiarism is preposterous. No need to “stoop” to rebut. One can blame you for a few things but not for this.
Your rationale makes sense. Let us hope for better take and retention numbers. I still believe that anything over 400K would be a very good number to start 2012.
In 2012, we should expect more impact from the used car market and sat radio 2.0 as soon as Lynx shows up. I aslo believe Lynx will help with premium packages and this will have a robust impact on 2012 revenue.
Good work, keep it up and Merry Christmas and Happy New Year!
Interesting…..Any early guess on net subs using Edmunds numbers? Happy Holidays
Gary….
The subscriber number will be interesting. Sirius XM has some challenges in getting the 442,000 needed to meet guidance.
I feel we can see a number between 430,000 and 470,000, but there is still a lot of time left in the month