By Brandon Matthews

It began yesterday with news of a runaway Toyota (NYSE: TM) Prius on a California Highway. As this drama was playing out, Toyota executives were taking a page from the tobacco companies on Capital Hill, by claiming there was no evidence that any such thing had occurred. Subsequently, Sirius XM Radio (Nasdaq: SIRI) shares began to show strength. That strength was magnified today on news that another Toyota gas pedal had stuck, and caused a woman to crash into a stone wall.

All of this follows a 911 release of a similar incident, involving the fatal crash of an off-duty state trooper and three members of his family under similar circumstances. Toyota blamed the incident on floor mats. Yesterday’s incident occurred in a vehicle that had none. As I write this, I must confess that I am sickened by all of this. Unfortunately, I have a responsibility to my readers to report news that affects Sirius XM.

Toyota’s problems are only beginning, and have already caused a decline in its market share. There will always be some that swear by Toyota quality, yet the new generation of car buyers will attach this stigma for decades to come. I find it very unlikely that Toyota can recover from these allegations. To the contrary, I expect to see many more cases revealed going forward. Every future accident involving a Toyota or Lexus vehicle will be scrutinized by the media and at fault drivers will likely blame a stuck gas pedal or braking problem as the cause, even it was not.

These news reports are likely contributing to increased share among Toyota’s chief competitors such as Ford (NYSE: F), Chrysler (NYSE: FIATY) and General Motors. Volkswagon, Hyundai and Kia have been big winners as well. All of these manufacturers boast some of the highest Satellite Radio penetration rates among automakers, which is giving surprising strength to Sirius XM Radio shares.

In 2009, Toyota sold approximately 2 million of the 10.3 million new cars sold in the U.S, of which a little over a third are equipped with Satellite Radio and even fewer convert to self paying Sirius XM subscribers.  Not a single Toyota leaves a dealer lot with a paid subscription to Sirius XM.

As Toyota’s problems accelerate, that pool of 2 million potential vehicles is shifting quickly to manufacturers such as Ford, which boasts a 70% Satellite Radio penetration rate. That 70% is underrated however, in that the missing 30% is mostly attributale to fleet sales such as police and taxi vehicles. The actual consumer rate is closer to 100%, which was verified on a visit to my local Ford dealer. Nearly every Ford vehicle leaves the lot with a fully paid six month subscription to Sirius, and the conversion to self pay is much higher. Subscriber acquisition costs are thereby lowered as well.

As this sales shift takes place, Sirius XM’s preferred automakers will likely ramp up production and sales efforts, as they vie for a top seed among American consumers looking to avoid a Toyota purchase. For Sirius XM, the smart money seems to be looking past any near term blips towards a more favorable long term view.

Position: Long SIRI

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