Is Bankruptcy in the Cards for GM?
As Sirius XM gets ready for their annual meeting of shareholders, their biggest OEM partner, GM, could well be getting ready to file for bankruptcy. For the overall sentiment of the economy, the GM news is hardly good. Consumer confidence has been on a virtual see-saw, and a GM bankruptcy has wide reaching implications. The question for Sirius XM shareholders is what impact a GM bankruptcy will have.
Sirius XM has already absorbed the news that Chrysler’s woes will carry a dramatic impact on the Q2 numbers. With their bankruptcy, Chrysler halted production of vehicles, and by extension, satellite radio installations.
General Motors bondholders have rejected a debt for equity swap that would have staved off bankruptcy and facilitate an additional cash infusion into the company. The automaker has until Monday to complete government-ordered restructuring of debt, labor costs, and production plant closures. The UAW had agreed to take a 20% stake in the company, but it is the $27 billion in debt held by bondholders that is the stumbling block. Those bondholders were offered a 10% stake.
Sirius XM Radio recently announced that their deal with the automaker had been extended to 2020 with more favorable terms for Sirius XM. GM has already slowed production substantially, and announced the closure of 1,100 dealerships.
The GM deal with Sirius XM differs from the Chrysler deal. With Chrysler, subscribers are counted when payment for the trial period is received at production. This means the impact from Chrysler will be felt in Q2. With GM, the subscriptions are not counted until the car is sold. This means that the slow in production will impact SDARS in Q3. Ironically, Sirius XM could see a small boost in typical GM subscriber numbers because of steep discounts being offered to consumers to buy cars. Closing dealerships need to clear out inventory and are getting more aggressive with prices. This means a small boost in GM subs, but with slow auto sales, the effect may not be very tangible.
It is possible that the new GM deal could be erased, or even modified in bankruptcy, but that is unlikely in my opinion. Satellite radio provides revenue for GM. What is more troubling than the bankruptcy for Sirius XM investors is that the entire OEM channel is still seeing very poor car sales. stabilization in the OEM channel is what is needed to see satellite prosper. Current 2009 guidance of $350 million in adjusted EBITDA is based on an OEM channel run rate of 9 million car sales for the year with a 50% installation rate. With nearly 5 months in the books, that 9 million run rate is holding, and most analysts do not see it dropping below.
One thing is certain. The current condition of the OEM channel will be carrying an impact for a minimum of the next two quarters.
Position – Long Sirius XM Radio, No Position GM
Tyler:
I think it is 27 billion not million.
‘Simple’ Typo, Methinks…………………;)
Fixed, thank you.
The state of GM is a perfect example of why such a huge concentration on vehicle subscriptions is a wasted effort.
The lack of consolidated content and distribution only makes the problem worse.
It also underscores why Sirius-XM will also lose in the mobile device/app market.
Without a single app that offers consolidated content, across the most popular platforms, Sirius-Xm is riding a train back to bankruptcy.
The current independent Sirius and XM streams are unstainable in the current market and over time.
I’m not a yahoo pumper or an investor I just want to say I’m laying in a casino room listening to Howard 101 on my iPhone and it is so enjoyable. Unless I’m a cook,the iPhone app is a game changer. Sterns seed will grow the tree. Shake it up scotty.
PS: I don’t envy the task that the authors’ of this site have tonight, visa-vi, sorting through all the crap from today’s shareholders meeting and how this would possibly fit in well with the preceding problems in the OEM sector…………..Aye Dios Mio, Help us Sotomayor !!!
And Good Luck Guys, Your Efforts Don’t Go Unheeded!!
Are we going to next do an article on the true meaning of an OEM again? Cause right about now this GM horse has been beaten, drugged stuffed and mounted. Then taken off the wall and had the entire process done over and over and over again. I myself think they ought to let the damn GM horse just find it’s pasture and leave it at that. Cause here the damn thing is like Hearing that Monica found a home for that Cuban. C’mon now. Chryslers in bankruptcy. Ford hasn’t taken any money. GM is that poor damn horse carting folks around Central Park every night. And hey guess what? The stock is trading at .34. Forgive me for not taking a hit at the horse. Would like some more in site into the upcoming possibilities regarding interfacing Sirius/XM with other technologies etc. Don’t worry I’m already scolding myself for posting this. Damn horse doesn’t even have any damn DNA left for testing.
Sign me up. I predict the next news articles better than I do the next share price.lol.
should’ve sold every thing, not once but twice at 60+ cents in the pre-market…….bought it all back, not once but twice…………when it tanked…………and imagine now…….on the way back to the ‘teens’ if not worse…………….!!!
Woe is me……………………….:(