General Motors is delivering good news, for a change.
The distressed automaker is ramping up its production. It's adding overtime shifts to some of its plants to keep up with "Cash for Clunkers" demand for new, fuel-efficient vehicles. The end result should be 60,000 more cars produced by GM this year.
GM's spurt follows Ford's (NYSE:F) similar announcement last week. The steadier domestic manufacturer will boost its output by 26% during the second half of the year to keep up with the flurry of trade-ins.
This may be welcome news for the automaking industry, and encouraging news on the economic front, but it's downright spectacular for Sirius XM Radio (NASDAQ:SIRI).
GM and Ford have been early believers in factory-installed satellite radios. Sirius XM could use the infusion of new drivers, after losing 590,421 net subscribers through the first six months of the year.
The new buyers may not be an easy sell for premium radio. One could logically assume that folks driving older cars worth less than $4,500 as trade-ins -- the only subset of the market drawn to the "cash for clunkers" program -- don't make up the ideal satellite-radio target market. Some may shy away from modern dashboard conveniences. Many can't just afford the service. In its latest quarter, just 44% of car buyers with satellite receivers installed chose to become paying customers. The conversion rate should, in theory, be lower here.
However, many of these buyers are in rural areas, where terrestrial radio is threadbare. Since satellite radios come with free trial subscriptions, many of these first-time users will be blown away by programming options.
There's always the fear that GM and Ford are overestimating the marketplace's appetite. Edmonds.com claims that "purchase intent" has fallen sharply in recent weeks. The first wave of "Cash for Clunkers" claims was naturally robust, but the pool of eligible participants thins out with every passing bucket of bolts that's surrendered for scrap.
I only fear that the rest of the potential buyers -- those without "clunkers" to hand over -- may be staying away, worried that dealers will be less reluctant to haggle their way down to great deals. As long as "Cash for Clunkers" is subsidizing drivers of stodgier cars, showroom bargains will be harder to find.
This will still be a net positive for companies such as Sirius XM, LoJack (NASDAQ:LOJN), and perhaps even Garmin (NASDAQ:GRMN), all of which feast on new car sales. However, investors will want to make sure that there's more to "Cash for Clunkers" than just the initial exhaust fumes of success.
More news than static on Sirius XM:
