Sirius XM Won't Be Caught in Big Three Pileup

Sirius XM (SIRI Quote) shares have plummeted as concerns mount over the fate of the Big Three automakers, but the satellite radio provider's revenue is not as closely tied to Detroit as the market seems to be indicating.

Sirius XM shares are trading below 20 cents a share, as investors are pricing in the likelihood that a bankruptcy filing by General Motors (GM Quote), Ford (F Quote) or Chrysler will probably drag Sirius XM down as well. The company leans on the vehicle installation side of its business, referred to as original equipment manufacturer, or OEM, is key to the company's success as a merged unit.

But while the long-term growth of Sirius XM is clearly closely tied to auto sales, the combined company is less reliant on any single automaker than they were before the Federal Communications Commission approved the long-awaited merger in July. James Ratcliffe, associate director of media equity research with Barclays Capital, points out that the merged company has arrangements with Honda (HMC Quote) and Toyota (TM Quote), so an automotive base in which to install satellite radios still exists beyond Detroit.

"In the event of a hypothetical Chapter 11 filing by one of the automakers, relatively little would change for Sirius XM," says Ratcliffe. "It doesn't make much difference in who sells those cars. If there are a million fewer cars being sold by the Big Three, and those are being picked up by Toyota or Honda, there's no noticeable difference for Sirius XM."

The assumption, of course, is that automakers will continue to sell vehicles. That may be tough to believe, as October sales data were abysmal and show few signs of improving. Compounding the problem is the fact that potential auto buyers have been unable to secure a loan due to tighter credit lending, which has also depressed sales. GM's U.S. sales plummeted 45% last month, Chrysler's sales fell by 35% and Ford's lost 30%.