After a very impressive June in auto sales one might have been expecting to see the sales pace ease off a bit and take a break. That is not what seems to be happening according to Edmunds analyst Jeremy Anwyl. Instead we are seeing the sales pace continue and we actually have a shot at a 16 million SAAR month from July. It has been years since we have seen this type of sales pace.
Pacing so far suggests July retail sales will end around 1.12m units for a SAAR of 13.3m. This compares with 1.15m units and a SAAR of 13m last month. If we factor in a typical month-to-month drop in fleet sales (June was 18.3%; July should be around 17%), then July will end with total vehicle sales of around 1.34m and a SAAR of 16m. (This compares with 1.40m and a SAAR of 15.9m last month).
- Jeremy Anwyl
While July is not as strong in actual sales volume as June, the pace certainly bodes well. A SAAR of 16 million (sales of 1.35 million) would certainly lend additional credibility to the recovery of the auto sector. Should this pace continue it will not be long before analysts in the sector will need to look at both shorter and longer term outlooks.
If you are invested in Sirius XM (NASDAQ:SIRI), traction in the auto sector is great news. The company derives most of its subscriber base from satellite radios that are factory installed in new cars. Consumers typically receive a free trial ranging from three months to a year. The company is successful at converting about 45% of these free trials into self paying subscribers.
A strong June was the icing on the cake of Sirius XM's second quarter. The company announced record subscriber numbers earlier this month, and will be conducting its Q2 conference call later this week. I anticipate that call to deliver record free cash flow, record revenue, record EBITDA, record gross subscriber additions, record net subscriber additions, and record satellite radio installations. If all of that sounds good, consider that July auto sales are pacing ahead of expectations and a great auto sales month in July will set the stage for Q3.
One particular item to note is that Sirius XM's auto deals have shifted slightly, and that shift will begin to pay off relatively fast. BMW and Ford now offer a free trial that is a higher tier of Sirius XM's service. Typically the free trial includes either the traditional Sirius line-up or the traditional XM line-up (depending on car brand). The company has an "All Access" tier which gives listeners the best programming from both platforms as well as Sirius XM Internet Radio. That higher tier costs a few bucks more but gives listeners more choice, and the ability to customize their listener experience through MySXM. If the free trials by BMW and Ford can convert customers to a higher priced tier, the impact on the bottom line will add up quickly. These two deals alone could be enough to stop what has been a small slide in the average revenue per user (ARPU) metric.
Another factor for investors to consider is this. As I stated, I anticipate many records to be set and revealed at this quarterly call. That could be enough to send this stock on a small run. What happens if we add very positive news in auto sales a week or so later? Things could be very interesting with Sirius XM in the weeks ahead. Stay Tuned.
Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.