Auto Sales Are About To Choke: Increase In Non-Revolving Credit Is Smallest In 4 Years

Moments ago, the Fed released the latest, November, consumer credit data: it was not good. Rising by just $13.95 trillion, it was a big miss to the $18.5 trillion expected, and below the $15.6 billion downward revised increase in October. In fact, three months after the historic surge in September to the highest print in the revised series, total consumer credit has tumbled to the lowest since January.

But the big problem was not in the total data, but in one of the two key component data sets.

Recall that a few days ago we noted something very disturbing for US auto makers: for all the hoopla around the auto sales number, US domestic car sales had actually dropped to a 6 month low, missing estimates by the most since 2008.

What was just as disturbing was that “plans to buy an auto” had tumbled the most since January of 2013.

Lacking the most recent credit data, we did not know what may have caused this dramatic slowdown in auto purchasing, and intentions. Now that we have the data, we also have the answer, because while revolving consumer credit rose at a respectable pace of $5.7 billion in November, it was that all important “other” series, non-revolving credit – the source of funds for student and auto loans – where there was a dramatic slowdown.

As the chart below shows, after rising by $15.5 billion in the month before, and a near-record $22 billion in September, the November increase in nonrevolving credit was a paltry $8.3 billion – this was the smallest monthly increase in this most important for US car makers data, since February of 2012!

Suddenly both the slowdown in December car sales, and the collapse in buying intentions makes all the sense in the world: US consumer may have just had their fill of auto-related loans, and without these to fund future purchases, even on the most relaxed terms in auto loan history, the pace of current and future purchases will collapse.

And, as we showed earlier today, this collapse in auto loan issuance could not have come at a worse possible time: the chart below shows that the motor vehicle inventory-to-sale ratio is now the highest since August 2008:

As we said this morning, “the channel-stuffed “see how well we are doing” smoke and mirrors of credit-fueled malinvestment has hit a wall and yet the automakers – afraid to signal any chink in that armor – kept producing.”

And now we know why nobody was buying: suddenly the car loan issuance pipeline has been shut half way.

The conclusion: unless there is a surge in non-revolving debt in December and the coming months, the cheap debt-funded US auto renaissance is officially over. As for the follow up question, whether this was caused by a revulsion toward more debt, then the rate hike in 2015 which was immediate passed through to borrowers, will make sure that what is currently a half-shut credit pipeline, will slam shut in the coming months and choke the only sector in the US manufacturing economy that was still relatively vibrant.