By Dennis “Cos” Costa
On July 29th Edmunds.com released its forecast for July auto sales and the news was encouraging. Edmunds is expecting the strongest sales month since Cash-for-Clunkers just a year ago. For Sirius XM Radio (NASDAQ:SIRI) this can only be good news. With Sirius XM being so closely tied to the automotive industry’s recovery and their continued growth, due to their contracts with automakers to factory install their radios, continued stability in vehicle sales is welcomed by Sirius XM shareholders.
Edmunds sees July vehicle sales, including fleet, coming in at 1,064,00 units, an increase of 8.4% from July 2009, and an 8.9% increase from June of 2010. These numbers represent to Edmunds.com analysts that July’s Seasonally Adjusted Annualized Rate (SAAR) will be 11.8M, up from 11.1M in June 2010.
“July sales numbers should be the highest we’ve seen since last August’s Cash-for-Clunkers frenzy. Retail demand for new cars this month has been the strongest of the year, even more than in March when Toyota launched an aggressive incentive campaign and other automakers followed suit”
Ray Zhou, PHD, Senior Analyst for Edmunds.com
U.S. automakers’ market share for July is estimated to be 44.9%, down sequentially from 46.8% in June 2010 and up year-over-year from 44.3% in July 2009. July 2010 had 27 selling days, one more than July 2009. When adjusted for this difference, sales increased 4.4% overall from July 2009.
“Consumers have been conditioned to think that the summer is a great time to pick up a deal on a new car. The bargain-hunting mentality that reigns in the marketplace today, and automakers’ ads promoting the clearance of old inventory, are driving people to dealerships in search of deals which, frankly aren’t all that generous this year.”
Jessica Caldwell, Senior Analyst at Edmunds.com
Despite there being an actual lack of incentives available and deals being offered by automakers, the perception is still out there for consumers that these sales numbers are representing a demand for what the automakers are presenting at each given price point.
“When perception and reality are in conflict, perception typically rules. We saw the same unwarranted reaction to last year’s automaker bankruptcies –people perceived that the circumstances would deliver a great deal on a new car, but a bit of pricing research would have proven that theory false and saved them some real money.”
Jeremy Anwyl, CEO of Edmunds.com
In a an analysis of auto trends for 2010, Edmunds.com projects that it seems increasingly likely that this year’s sales will be in the low 11 million range, and that the upward trajectory of sales may have stalled. While looking at these month-to month-numbers is helpful and important in measuring the impact on Sirius XM Radio, the company has already proven, with the efficiencies now achieved in its business model since the merger, that it can produce free cash flow and adjusted earnings from operations with vehicle sales even at these levels. Sirius XM released early subscriber numbers of net additions totaling more than 580K, and on Wednesday, August 4th 2010 will be reporting its second quarter financial results, revealing the impact those net additions had on key company metrics.
Position: Long SIRI
Contact the Author: denniscosta@satelliteradioplayground.com
As always, you present the facts in a clear, meaningful manner and wrap them around an excellent, dispassionate bottom line analysis. Good work.