Siritownhall

Image source: Sirius XM.

That new car smell is everywhere these days. Most automakers reported solid growth for the month of November, leading industry tracker Autodata to forecast that 18.19 million cars have been sold over the trailing 12 months.   

Let's put that into perspective. This is the third month in a row that sales have topped 18 million, and that has never happened before. We're also looking at a new record for annual car sales unless Santa Claus replaces all vehicles with reindeer-pulled sleighs later this month. The old record, according to the U.S. Bureau of Economic Analysis, is a mere 17.35 million set in 2000.

This is great news for the auto industry, of course, but it's probably even better news for Sirius XM Radio (NASDAQ:SIRI). The country's lone provider of satellite radio relies on new vehicle sales to fuel its membership expansion, and investors are going to like the prospects of a record year of sales.

Let's take a deeper dive into the role that the sale of a car benefits Sirius XM. A Sirius or XM receiver is now included in three out of every four new cars sold in this country. All vehicles are sold with extensive free trials to the premium radio platform, and these days that's resulting in 41% of those sticking around as self-paying subscribers after the sampling periods run out. If 75% of the new cars sold come with factory-installed satellite receivers and 41% of them latch on as paying members, we're talking about roughly 307,500 new self-pay members for every million new cars that are sold. 

When you consider that 16.5 million new cars hit the streets last year we're talking about more than 500,000 net new self-pay additions than last year just based on the incremental growth in new car sales from one year to the next.

That's not too shabby, especially for a unique service provider with a record 28.96 million total subscribers as of the end of September.

Now it's true that the 41% conversion rate is near its historical low. This isn't a surprise. The conversion rate percentage in the mid- to high-40s that Sirius XM was reporting several years ago isn't going to return. We've moved beyond the early adopters and affluent that bought the high-end cars that were the first to roll out with satellite receivers. Sirius XM is also making a big push for the used car market now, and those conversion rates are even lower.

However, if we're going to mark Sirius XM down for its shrinking conversion rate we may as well add some points for its ability to keep drivers around. Sirius XM's average monthly churn rate of 1.8% through the first nine months of this year is near its historical low.

It gets better. There are nearly 80 million cars out there in this country with a Sirius or XM receiver, and Sirius XM expects that figure to double in a few years. Sure, most of them are and will continue to be inactive, but it's an important point as we assess the used car market. The chances will double in a few years that a used car that is purchased will come with a satrad receiver, and that means that even with a lower conversion rate that Sirius XM can make it up in volume. 

So, yes, the auto industry is rightfully cheering a great November on the way to what appears to be a blowout 2015 for car sales. Just don't forget that Sirius XM is a welcome beneficiary that's swinging its pompoms, too.

 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.