Investors put up with financial losses at Sirius XM so long as it and predecessor companies were posting subscriber growth. But now the satellite radio provider is contending with losses in both areas, and investors mind a great deal.

On May 7, Sirius XM (SIRI) said it lost 404,000 subscribers, or 2% of its user base, in the first quarter, the first-ever quarterly loss in satellite radio history. Sirius XM blamed weak retail sales and poor demand for autos that come outfitted with satellite radios.

The miss caught investors off-guard. Sirius lost 37,604 new car-related customers in the quarter; Standard & Poor's analyst Tuna Amobi expected the company to add about 100,000 new car subscribers. Sirius XM's shares fell 18.14%, to 43%.

Worse still, the company's subscriber losses may not be over. Many analysts now expect Sirius XM to shed subscribers in the second quarter as well as retail sales remain in the doldrums and auto industry woes deepen. Sirius XM partner Chrysler has temporarily shut all of its factories while it navigates bankruptcy.

General Motors (GM), which also installs Sirius XM devices in its cars, will close a dozen plants temporarily this summer. Sirius XM's new-car-related sales could remain under pressure for months, analysts say. If GM ends up filing for Chapter 11, Sirius could hemorrhage subscribers though mid-2010, Amobi says. If GM's troubles intensify, "that could accelerate losses," he says.

A Litany of Bad Breaks Sirius CEO Mel Karmazin tried to concentrate investors' attention on the company's financial progress. "There was a time when the focus was on adding subscribers at any cost," he said during a conference call with investors and analysts. "Today, with our strong subscriber position, all of the [carmakers] signed to long-term contracts, and a complete content offering, our focus is on making money." Problem is, with subscriber growth slowed, Sirius may also have a harder time meeting its financial goals.

The company may not reach positive free cash flow, a measure of profitability, until late 2010 or even 2011, Amobi says. Sirius still has network upgrades and substantial interest payments to Liberty Media, which recently invested $530 million. "That could push them back [in getting to free cash flow] as well," Amobi says.

Some moves aimed at generating cash could also undermine efforts to lure customers. To slash costs, Sirius XM has cut shows and stations, alienating some users. In March the company began charging an extra $2.99 for streaming its content online, a service that used to be free. It also raised prices for subscribers using multiple radio devices, from $6.95 to $8.99 a month.