Sirius XM Radio (NASDAQ: SIRI) is once against shifting into drive in the resale market.
The satellite radio provider announced a deal this morning with Kia, arming its used-car department with financial incentives to push premium radio if it's available. Buyers of pre-owned vehicles that already have factory-installed Sirius or XM receivers will be receiving complimentary three-month trial subscriptions.
It's smart bait.
Sirius XM knows that getting drivers hooked on premium radio is easy. A healthy 44% of car buyers who kick the tires of satellite radio convert into self-paying customers. Sirius XM also gets the important contact information that it wouldn't otherwise have, allowing the company to market directly to buyers of secondhand cars down the line.
The South Korean automaker's Kia Motors America subsidiary joins what are now more than 9,000 auto dealerships in the Sirius XM Pre-Owned Vehicle Program.
Just 30% of the 50 million cars that are bought in this country are new. One would think that buyers of used cars aren't as lucrative potential subscribers as those paying up for vehicles with that new-car smell. Aren't they less likely to have the disposable income to pay for radio subscriptions? Thankfully, that isn't the case.
CFO David Frear recently revealed that there is no difference in the churn rate between subscribers driving off the lot with new or old cars. Churn rates will naturally be higher for those on monthly plans instead of annual installments -- and that's where the used-car market loses some of its appeal -- but there is just no difference between buyers on the same plan. The value proposition for Sirius XM is too great on the resale front. The receiver's already in the car! The investment was made years earlier. Why should it remain dormant?
Sirius XM can't afford to wait in getting the word out.
The dashboard is about to get crowded as consumers load up on smartphones and tech giants introduce streaming services. Sirius XM's conversion rate has held up well in the connected car, but things will get interesting once Apple and Google introduce their streaming platforms later this year. Google hasn't made any bones about jumping into the streaming music market, and there are too many reports claiming that Apple is negotiating with the record labels for streaming rights to ignore.
A war for the dashboard is coming, and the bigger Sirius XM's army is when the battle begins the better.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.