The consumer economy is cooling and car prices remain vastly higher from just a few years ago. But there is little sign that high car prices at dealers’ lots are weighing heavily on overall sales trends, according to the head of auto lending at JPMorgan’s consumer and community bank.
Despite the dual sting of more than three years of above-trend inflation and a cooling labor market, household finances are still in solid shape, Chase Auto chief Leslie Wims Morris said in an interview. That has helped car buyers weather a brutal combination of higher vehicle prices and steep borrowing costs.
Consumers’ “cash buffers are still strong,” Wims Morris said. “What we’re seeing as it relates to credit profiles, that is all healthy. That hasn’t changed.”
Risks loom as the job market softens, she said. Investors complacent about a possible slowdown got a wake-up call earlier this month in the July jobs report from the Labor Department. It showed below-trend hiring last month and a brutal set of data revisions that erased more than a quarter-million jobs previously thought to have been added on net in May and June.
Despite sluggish hiring, a dearth of layoffs has kept unemployment in check at 4.2 percent, however. Claims for jobless benefits have mostly hovered at modest levels this year, meaning that relatively few families are being forced by a job loss to cut back on spending.
“Let’s see what continues to happen with unemployment over the next couple quarters,” Wims Morris said. “For now, we still believe the consumer is in a relatively strong position.”
One sign of that strength: More consumers are flashing the ability to bypass expensive financing rates by paying for vehicles with cash. About a third of used-vehicle sales have gone to all-cash buyers, as have about a fifth of new-vehicle sales, the greatest share in more than a year.
Rising car prices—and not high interest expenses—are the cost factor putting the most strain on buyers’ budgets, Wims Morris said. The average cost of a new car, at just under $49,000, is up 27 percent since just before the pandemic, she said. New-car prices cooled off in May and June, but remain roughly flat over the past 12 months. The steep price jumps of the postpandemic inflation surge are still baked in.
So far, tariffs haven’t done much to put cars farther out of reach for U.S. drivers, Wims Morris said, largely because manufacturers have done their best to avoid passing along higher expenses to buyers.
Carmakers “are looking to minimize the impact of the increase,” she said. That strategy has made particular sense for them so far amid the Trump administration’s stop-and-go tariff rollout, with everyone up and down the supply chain unsure where levies will eventually settle.
Greater pain for consumers could be ahead, however. Economists at Goldman Sachs wrote over the weekend that although American shoppers have only absorbed about 22 percent of tariff costs so far—with import businesses taking a bigger hit to date—the share borne by consumers is likely to rise in the months ahead as higher-cost inventory works its way toward retail outlets.
Write to Matt Grossman at matt.grossman@wsj.com