Global Auto Industry Enters First Recession Since 2009

It's official: auto market data has confirmed that the "boom" created by a decade of low interest rates following the global financial crisis is finally over. According to new estimates from RBC Capital Markets, the global automobile industry is heading into recession, as manifested by its first production drop in nearly a decade. 

RBC analyst Joe Spak estimates that worldwide light vehicle output will fall about 4% in the fourth quarter after falling 2.9% in the third quarter. This will be the first time this number has fallen for two consecutive quarters since 2009.

Estimates for total vehicles produced have also fallen. Automakers are expected to produce 94.6 million vehicles this year, which is down 0.6% from 2017's numbers. Analysts also expect the recession to continue next year, with the production number in 2019 predicted to drop by about 0.4%. 

Just days ago, we highlighted the continuing collapse of auto sales in the Chinese market. November data confirmed a continuation of the ugly trends that we discussed last month.

Passenger vehicle wholesales were down 16.1% on the year, according to the China Association of Automobile Manufacturers. This data includes sedans, SUVs and crossover utility vehicles. This should not come as a surprise to regular readers as we have been reporting on the anemic numbers coming out of China in both October and November, although the severity of the slowdown has caught even the optimists by surprise.

Similarly, we just reported on European auto registrations falling for the third month in a row. Automakers in Europe saw new car registrations plummet an ominous 8.1% in November according to ACEA data provided by Bloomberg.

Meanwhile, passenger car sales in another huge market, Japan, were down 3.4% over the first 8 months of 2018 compared to the year prior.

The country's aging populous has many drivers surrendering their licenses while the younger generations seek to avoid costs associated with owning vehicles in favor of public transit. 

Finally, the situation in the United States and North America likely won't be getting better anytime soon either, as prospective automobile buyers aren’t no longer able to find 0% financing deals anymore. 

Rising interest rates have caused auto lenders to pull back on the offers that have been the driving force behind the auto industry for the better part of the last decade. Until recently, still fueled by big incentives, the industry hadn’t seen meaningful aftershocks from rising interest rates. That's about to change in a big way.