MADRID, Spain (AP) _ The automobile industry, a symbol of Spain's drive to join the wealthier Western nations, has been stifled by the European recession.

Sales of Spanish-made cars fell nearly 17 percent in the year ending Sept. 30, slightly higher than the European-wide decline.

On Friday, the German carmaker Volkswagen announced it was laying off 9,000 workers at its Spanish subsidiary, SEAT, whose bubble-shaped cars put an emerging middle class on the road in the 1960s. Over the weekend, Volkwagen also confirmed 8,000 planned job cuts in Germany.

Nissan Iberia last week announced plans to lay off 1,000 of its 7,000 workers in Spain and freeze wages until 1995 in a bid to stanch losses. Suzuki-Santana and heavy vehicle manufacturer Iveco-Pegaso are negotiating with unions to extend seasonal layoffs for a total of 2,250 workers.

''We're going through a very bad period, not just in Spain but all over Europe,'' said Enrique Fernandez-Laguilhoat, director of a trade group representing the 11 companies that make cars, trucks and buses in Spain.

Fernandez-Laguilhoat estimated that 10 percent of Spain's workers make a living off the automobile industry, directly or indirectly through jobs in assembly plants, filling stations, garages or dealers.

But SEAT is taking an especially hard hit. Sales have fallen 33 percent over the last year. Together, Volkswagen brands SEAT, Volkswagen and Audi registered a 28 percent decline in Spain.

Volkswagen wants to close SEAT's Barcelona plant, which employs 10,500 workers. Negotiations are under way to save some of those jobs by converting the facility into an industrial park for parts suppliers.

The proposal has angered unions and worried the government, which already faces nationwide unemployment topping 22 percent.

Volkwagen reportedly tried to lure the Spanish government to bail out its former state enterprise, which Volkswagen bought in 1986, but Prime Minister Felipe Gonzalez and his ministers have refused.

Meanwhile, the unions are trying to reduce the sting of job losses through enhanced unemployment benefits and early retirements.

Finance Minister Pedro Solbes has complained that the unions simply protect members without considering the future of the industry itself - code for supporting liberalization of Spain's protective labor laws, which make it difficult to hire temporary workers or fire permanent staff.

The unions, however, say that with all manufacturers in foreign hands, the best they can hope for is to defend workers who have jobs now.

Local dealers concerned with the domestic market point to a problem closer to home: automobile taxes. While buyers here have to pay the 15 percent value- added tax common to all European Community countries, Spaniards must pay an additional 13 percent registration tax.

That means that the $8,500 price tag on a bottom-of-the-line Renault R-5 in a Madrid showroom includes nearly $1,850 in taxes. ''Taking that away would reactivate sales enormously,'' Renault dealer Miguel Gutierrez said.