FT put out a piece the other day talking about how this auto industry slowdown we are seeing is helping spur an overall global economic slowdown. People don’t realize just how big the auto industry in fact is, the industry itself is home to millions of jobs across the globe with long supply chains that reach into raw materials, textiles, chemicals and electronics! Last year for the first time since the financial crisis, the auto industry slowed. The IMF is estimating that this fall in output accounted for more than 25% of the slowdown in the global economy from 2017 and 2018.

The auto sector may also be responsible for up to 33% of the slowdown in global trade growth over the same period, according to the IMF. In fact their projection of an economic lift in 2020 is based on the auto sector recovering, further stating that if the auto sector becomes a focus for the US/China tradewars, things could get much worse.

The White house is supposed to make a decision on auto tariffs by November 13th.

We have policy changes in China (including withdrawal of tax breaks that encouraged car ownership), New emission standards in Europe, global standards rapidly changing, the rise of car sharing programs/apps have all become more popular and much more is all adding to the auto industry issues globally.

Overall car sales fell 3% in 2018 and production fell by about 2.4%, according to the IMF. This drop off in car sales could have reduced world GDP by as much as 0.2% according to Fitch Ratings which takes into account spillover into other industries and how that effects households.

This is where the global slowdown has been concentrated. It has been the lead sector, not just broader collateral damage [of the trade war] . . . There is no doubt this is a key driver of the global manufacturing cycle.”

Brian Coulton – chief economist at Fitch Ratings

Analysis found that if the US were to act on the threat of 25% tariffs on auto imports from China and other countries, US auto production could fall by 1.5% and the sector would shed 2% of its total workforce or roughly 195,000 people would lose their jobs.

It doesn’t seem like the continuation of tariffs is what either side wants, they know what the costs will be like if things move into the auto industry. That being said, that sector needs a strong turn around here for 2020 and surely all the subprime loans and 90 day + delinquency data we have been reporting on doesn’t help matters much.

Chalk this up as another area to watch for now…