By Demian Russian
No matter how the government’s “Cash for Clunkers” program’s success is spun, in the short or long term, there is no question that it will benefit Sirius XM’s (SIRI) continued growth into the future. Simply stated: More OEM sales mean more subscribers for Sirius XM. Older vehicles, sporting only AM/FM terrestrial radios, are being hauled off by the truckload to the nation’s wrecking yards to be crushed and recycled. With Sirius XM’s penetration rates continuing to accelerate in the new and used OEM channels, crushed vehicles are being replaced with new satellite radio equipped vehicles. As the “Cash for Clunkers” program’s huge success speeds up the demise of older vehicles, the day when the majority of vehicles on the nation’s roads are equipped with satellite radio comes even closer into view.
Since the “Cash for Clunkers” stimulus program launched, it has exceeded just about everyone’s expectations. After the initial $1 billion slated to fund the program was being exhausted in only the first week, President Barack Obama confidently stated that the program had “succeeded well beyond our expectations and all expectations.” Transportation Secretary Ray LaHood added “this is the stimulus program that has worked better than any other stimulus program that was conceived.” The Obama administration quickly promised that all “Cash for Clunkers” program car sales would be honored until this Tuesday, as the House of Representatives approved a $2 billion extension on Friday. The Senate is expected to approve the bill this week.
With 13.2 million vehicles sold last year and only about 4.8 million sold in the first half of this year, many view this as a pivotal event in the recovery of U.S. auto sales. Before the program’s launch on July 24th, the analyst’s forecasts for July auto sales were calling for about 10 million vehicles on an annualized basis. On Friday, Barclays Capital analyst Brian Johnson, impressed by the program’s success, was predicting annualized vehicle sales could reach the 12 to 13 million mark. To put this in perspective, analysts were only looking for a 9.7 million annualized sales rate just this last June.
There are signs that the “Cash for Clunkers” program has been the catalyst to unleash pent-up demand. Ford (F) reported the first year-over-year increase in auto sales in two years for the month of July. Ford’s sales analyst, George Pipas, attributed July’s bump in sales to last weeks rush into the dealerships. During Auto Nation’s (AN) Q2 earnings call, CEO Mike Jackson said that the “Cash for Clunkers” program had helped drive customer traffic up 36 percent. When questioned by Goldman Sachs (GS) analyst Matthew Fassler about how much of that additional customer traffic actually had vehicles to trade in, Jackson replied, “It’s people who have a clunker or who think they have a clunker or wish they had a clunker.” Jackson went on to say, “The fascinating thing though, is that even if they think they have one and we inform them that they don’t, they are not walking away. The conversation continues…”
While all of this excitement bodes well for OEM sales in Q3 and beyond, there are concerns that the “Cash for Clunkers” program actually hurt auto sales in Q2. Edmunds.com CEO Jeremy Anwyl estimates that “over 100,000 buyers put their purchases on hold waiting for the program to launch.” While this may be true, the huge success of the program and its intended benefits to the U.S. auto market’s future are clear.
The government couldn’t have marketed this program better — whether they tried or not. Just as the press was reporting that the funds were about to run out and consumers had missed their chance to take advantage of the program, the Obama administration was promising that the program would be honored until Tuesday. The next $2 billion tranche was approved in the House on Friday and is widely expected to be approved by the Senate this week. Everyone likes second chances — especially Sirius XM investors.
Position: Long SIRI. No position GS, AN, F.
Contact the Author: DemianRussian@satwaves.com
It will be interesting to see how sales go post CFC program…..that will be the true test of the Auto recovery.
SIRI is now trading from dominant technical strength, which has been reinforced with the upside action this morning. With technicals and fundamentals now in conjunction, projecting positive developments for Sirius XM into the future, risk/reward assessments definitely favor holding long positions for upside potential indicated toward 1.00+ over the next six months to one year. The massive short position of recent weeks is probably being slowly wound down but still is likely in excess of 100 million shares. This represents significant exposure to those who remain short, as it is now a game of “musical chairs” and the last to cover will probably pay a substantial penalty. An upside bias and positive sentiment should prevail into the August 6 release of 2nd Qtr. earnings and guidance information, leading to solid underlying support on any near term pullbacks through this period.
Great article! Consumer based stimulus is the way to go! Funneling money through local and state municipalities I supposed was necessary but not the kind of stimulus that “jolts” the economy the way I think the stimulus passed this year intended. The faster you get money in people who plan to spend the money on something that they need (want), and will spur other related purchases as well as Sirius XM, is truly the way to go. Good for the economy, good for Sirius XM!
Long Siri
YES, this free handout “stinks” for some of us who already have new cars, don’t own a “clunker”, and hate what the DEMS are doing to our country…..BUT, this is good news for SiriusXM! As a heartbroken and brain-dead shareholder who has been holding since 2004 (yes, I’ve been buying on this downward spiral), this joilt to the economy will definately help with SIRI Q3 numbers. It’s nice to see us slowly rise from the dead! Good luck fellow longs, we need it!