Sirius XM Wants Your Lemon

Sirius XM Radio (Nasdaq: SIRI  ) isn't just about reaching out to drivers of shiny new cars.

The satellite radio giant struck a deal with leading auto retailer AutoNation (NYSE: AN  ) this week, offering free three-month trial subscriptions to anyone buying a pre-owned car with a factory-installed receiver.

This isn't a new strategy. Sirius XM has been working with individual carmakers for years to make sure their showroom sales teams have incentives to promote satellite radio on secondhand cars. There is no such thing as a permanently dormant receiver to Sirius XM. Every eventual buyer of a car that just happens to have a Sirius or XM receiver is a potential subscriber.

Three months is shorter than Sirius XM typically offers new car buyers, but the media maven knows what it's doing. That's more than enough time to sample the service and see whether it's worth paying for. One would also imagine that conversion rates are lower on used cars, since many of those buyers may be either tight on money or simply out to get more bang for their buck by aiming for a better car that they would not be able to afford as a new ride.

Inking a deal with AutoNation will make the free trials standard throughout its 257 showrooms. AutoNation's presence is larger than CarMax's (NYSE: KMX  ) 107 superstores, though CarMax only sells used cars. AutoNation's specialty is new cars. Either way, Sirius XM has had a similar deal in place with CarMax for years.

This is a win-win-win situation. A car buyer who may not even know that a dormant satellite radio receiver came with the car can now check it out for three months without having to pay. Sirius XM has a shot at a cheaper lead than what it typically has to shell out for a new car activation, establishing direct contact with the new owner. Showrooms have a new incremental revenue stream.

Sirius XM has been growing its subscriber base at a slow yet steady pace since slipping for a few quarters during the recessionary lull of 2009. This week's AutoNation deal is unlikely to lead to an immediate windfall, but it keeps the satellite radio darling moving in the right direction.  

If you like to stay on top of what happens next -- and I'm guessing you do because you're reading this article -- how about checking out Motley Fool's top stock for 2012? Spoiler alert: It's not Sirius XM. However, it is a free report, but only for a limited time, so check it out now.

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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On January 04, 2012, at 11:11 AM, Austin77478 wrote:

    Rick! "This week's AutoNation deal is unlikely to lead to an immediate windfall, but it keeps the satellite radio darling moving in the right direction." There is veracity to the latter part of your sentence. The beginning of the sentence is circumspect.

  • Report this Comment On January 05, 2012, at 2:38 AM, kmacattack wrote:

    Rick, I have to disagree with you analysis that conversion rates will likely be lower on pre-owned vehicles than on new cars for a couple of reasons. First, the used car buyer is much more likely to be a younger buyer, and although they may not have $600 per month for a car payment, buying the used car with a $200 payment makes the $13 per month Sirius radio subscription "no big deal". My daughter is 27, doesn't make a lot of money, but doesn't think she can live without her I-Phone, and swears she can't get by without spending less than $140 per month. I rented a Ford Fusion last month, partly because I am considering buying one, and partly because the car gets 33 mpg and nealy paid for itself on the 10 day 2,000 mile trip in gas savings. The car was equipped with a Sirius radio, and it was never, ever turned off during the entire trip. Sirius is so far superior to any other entertainment/information venue available in a car that there is simply no comparison. I "subscribed" to Pandora about a year ago, and am still counted among their 100 million subscribers, and I'll say one thing for Pandora, it's worth every penny you pay to listen (nothing). I couldn't bear to listen for more than 15 minutes after spending hours "programming my stations" on Pandora, and haven't listened to Pandora again in nearly a year. On the other hand, Sirius reminds me of the early days of FM, when it was largely commercial free, and in my local market, the program directors were near geniuses as far as quality of content programming. I NEVER EVER listen to Terrestrial radio, unless it's a station carrying a sporting event that I want to listen to when I'm away from home.

    The younger used car buyers typically love music much more than older, more affluent new car buyers, and they will be hooked on Sirius's huge variety of available rock music (a lot of stations which I've heard of the artists, but never listen myself, because I'm 61 years old. There's hip hop, rap, metal, alternative, classic rock and Willie's Road house (now you're talkin') , classical, and on and on. Then, there's Howard Stern, who I can take for a few minutes, but the younger audience would listen to him 24/7, and fork out $13 per month just for his station alone. I look for SIRI to have a great year, as long as car sales in general are at least mediocre, but with the average age of the American car fleet at nearly 10 years old, I think car sales both new and used are going to be good. The next car I own will have a Sirius Radio, guaranteed, and I don't even drive that much anymore. Sirius made our 2,000 mile trip much more enjoyable-and even after driving 500 miles in a day, I felt relaxed. Part of the credit I'll give to the Ford Fusion (a great car for the money) but a lot of the stress busting, I attribute to listening to Sirius. it's like buying a good mattress and waking up feeling much more refreshed. Sirius is a good investment as far as I'm concerned. I can't imagine anyone who drives a lot of miles per year, i.e. truckers, salesmen, etc. not owning a Sirius radio.I'm not Sirius's biggest shareholder, but I've done really well (doubled my money in about 18 mos) and I look for the stock to be up at least 50 percent this year, and if the economy continues to improve, I look for the stock to double.

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