During Sirius XM’s earnings call last week, the company said that Chrysler’s bankrupcy and announced factory shutdowns would be a “noticeable hit” to their Q2 subscriber growth numbers, but didn’t offer many details.
Now, via Sirius XM’s 10-Q, we have a better idea: Sirius (SIRI) said Chrysler represented about 16% of its gross subscriber additions in 2008.
What does that mean for this quarter and this year? That depends on what actually ends up happening with Chrysler’s business. But it’s not good news.
Here’s the whole passage from Sirius XM’s 10-Q:
The bankruptcy of Chrysler LLC and other major automakers may negatively affect our subscriber growth, business and prospects.
On April 30, 2009, Chrysler LLC filed for bankruptcy protection under Title 11 of the United States Code. Chrysler’s bankruptcy may have certain adverse effects on us, including:
- Chrysler has announced that it plans to idle its plants during the pendency of its bankruptcy case. We do not expect to generate a significant number of new subscribers from Chrysler while its plants are closed. During the year ended December 31, 2008, Chrysler produced approximately 900,000 vehicles which included a satellite radio and a prepaid subscription to our service. These subscribers represented approximately 16% of our gross subscriber additions in 2008.
- As part of its bankruptcy case, Chrysler may reject or assume its agreement with us. If Chrysler rejects our agreement, we could lose a significant source of future subscribers to our service, but we would be released from our obligations to Chrysler to share revenue, provide equipment subsidizes and make other payments. We do not have any reason to believe Chrysler will reject its agreement with us.
- Chrysler’s bankruptcy could also disrupt and/or delay the payment of certain amounts to us, particularly amounts owed to us by Chrysler on the date of the bankruptcy filing for subscriptions to our service.
There is also significant uncertainty surrounding General Motors’ future and potential filing for bankruptcy protection. A bankruptcy filing by General Motors could have similar effects on our subsidiary, XM. Specifically, a General Motors bankruptcy could reduce the number of subscribers we realise from General Motors, would allow General Motors to accept or reject its agreement with XM, and could disrupt and/or delay the payment of certain amounts to XM. Similarly, if General Motors rejected its agreement with XM, XM would be released from significant financial obligations to General Motors.