The final data for July auto sales in the United States is in. What we have seen is a smattering of headlines that present a mixed bag of positives and negatives. However, the biggest and boldest and earliest headlines came from GM (GM) and Ford (F), and they did not send positive vibes to Wall Street.
Everyone was expecting a more modest July. It is typical behavior in car sales. The key was in how the news was presented. Headlines read:
- "Auto Sales Remain Soft In July"
- "July Sales Strong Overall But Ford and GM Slide"
- "Chrysler Sales Rise 13%: GM Ford Deliveries Drop"
- "Audi USA's July 2012 Sales Roar Ahead 28%"
- "Car Sales Stall Out In July"
- "U.S. Auto Sales In July At Low End Of Estimates: GM Ford Slip"
- "GM Ford Sales Lose Ground To Japanese Rivals In July"
- "GM Ford Post Lower Sales July New Car Sales"
What we have here is a cross section of news with a focus on weaker performance by some of the industries biggest names. Readers that have followed my articles about car sales and SiriusXM (SIRI) were prepared for this type of situation. I warn of the possibility of headlines impacting SiriuisXM often. While the headlines tell one story, there is a deeper story that needs to be considered by satellite radio investors.
Last year there was a terrible tsunami in Japan that virtually crippled the asian brands for a few months. The benefactors of that event were the likes of Ford and GM which had inventory available to sell. The events last year led to those companies selling more vehicles than they otherwise would have. While this may have been good news last year, it set up a dynamic where this years comparisons would be challenging. This is exactly what we are seeing. What was not expected by anyone was the steepness of the decline for both Ford and GM.
July auto sales fell short of analyst expectations. With just over 1,150,000 cars sold, sales were below the 1.16 million expected by Kelly, the 1.165 million Edmunds projected, the 1.17 million that TruCar outlined, my 1.2 million, and well below the 1.27 million outlook that JD Power anticipated. Essentially the last week of the month was pretty poor compared to the first three weeks.
From a satellite radio perspective, the focus is not only on sales, but also production. With Ford and Chrysler eliminating many of the typical two-week plant closures in July, production numbers will be providing subscribers that have not yet even made it to the sales data. In addition, the numbers we are seeing sold are clearly above the 1 million to 1.1 million we need to see for SiriusXM to report good numbers. That is exactly why SiriusXM investors do not really need to worry at this point. Sales are still on a pace to eclipse 14 million in 2012, and that represents a number substantial enough for the satellite radio provider to meet and beat current subscriber guidance.
If nothing else, the setback in SiriusXM share price could well present a decent buying opportunity. From a technical standpoint there is a lot of support at $2.10 and resistance at $2.20. This provides a nice wide trading range in which the equity is currently testing the low end. I provide regular technical updates at SiriusBuzz that readers can use as part of their trading tools.
The deeper look at auto sales brings us to the mix. Sirius XM garners subscribers in three ways from the auto sector. "Leading" subscribers are counted at production, "Point-of-Sale" subscribers at the time of sale, and "Trailing" subscribers only after the three month trial period and if the consumer elects to keep the service. The balance between these categories shifted in drastic fashion last year as a result of the tsunami. We are finally seeing the balance ease its way toward normal again. This will help to smooth out the subscriber numbers.
One big story here is a resurgence of the "Trailing" category brands. Between 40% and 45% of satellite radio equipped "Trailing" cars sold this month will become subscribers in October or November. This sets up with real clarity that Sirius XM will not only meet current subscriber guidance, but beat it by a decent margin. The auto sector as a whole only needs to sell 5.6 million cars in the remaining 5 months to hit 14 million. These are the types of things investors should focus on.
SiriusXM is less than a week away from reporting earnings and many anticipate a great call. This will help solidify the value in the stock trading at current levels and set the stage for a possible run. Investors need to pay attention to headlines that impact a stock, but a more savvy investor understands the deeper story and uses such opportunities to maximize profits.
Disclosure: I am long SIRI. I have no position in Ford or GM