There's a grim reality at the pump. Gasoline prices are climbing with little relief in sight.
Oil closed at a 29-month high last week, a fact Sirius XM Radio (Nasdaq: SIRI) shareholders can't ignore.
Beyond the obvious hit on disposable income, higher gas prices encourage drivers to spend less time on the road. That's bad news for satellite radio, Garmin's (Nasdaq: GRMN) GPS systems, General Motors (NYSE: GM) OnStar subscriptions, or any other company relying on heavy auto usage to justify the expenditures.
If you're not driving as much as you used to, shelling out $15 a month for satellite radio becomes a less compelling value proposition.
Americans logged 3 trillion miles on the road last year, according to the U.S. Transportation Department. This is the highest tally since 2007, which capped off an impressive two-decade streak of increases. The recession obviously tripped up the auto industry after that, but it's hard to dismiss the spike in gasoline prices in 2008 as an important contributor.
The satellite radio industry suffered its only two quarters of sequential declines in subscribers during the first half of 2009. Is Sirius XM doomed if oil prices keep climbing, given the unrest in the Middle East?
Let's get one thing out of the way: Sirius XM's stock isn't returning to its pocket-change prices. There are no bankruptcy concerns, and even a lull in subscriber growth is unlikely to derail Sirius XM's profitability.
Pain at the pump may also be a good thing for satellite radio. There are no more Cash for Clunkers rebates, but skyrocketing prices should drive owners of older gas guzzlers without satellite receivers to trade in their jalopies for fuel-efficient hybrids that have factory-installed Sirius or XM receivers.
The employment picture is also improving, putting more drivers on the road as unemployment levels continue to drop.
These favorable headwinds don't mean that Sirius XM investors can rest easy. Economic recovery or not, if gas prices do get out of whack commuters will consider the mass transit, biking, and carpool alternatives.
In short, Sirius XM is built to withstand slightly higher gasoline prices in an improving economy. It's another matter entirely if pesky oil prices result in cars parked in the driveway.
Forget Pandora. Skyrocketing fuel prices are the real Pandora's box.
Do you think Sirius XM can withstand a surge in gas prices? Share your thoughts in the comment box below.
