U.S. auto sales may have plateaued and are being increasingly powered by incentives, Wells Fargo & Co. analysts wrote in a research report on Thursday.

The average new vehicle incentive has risen to 7.9 percent of a vehicle’s market value, as of March, compared with 7.2 percent in the same month a year ago, analysts led by John McElravey wrote. Incentives such as rebates have been rising as sales lose steam. New U.S. vehicle sales fell in May, marking the second monthly decline this year. 

Cheap gas prices and historically-low interest rates on auto loans have helped lift car sales in recent years. Automakers sold a record 17.5 million vehicles last year. 

More manufacturers have been pumping up their leasing businesses as a financing alternative to get drivers into a new car. Auto leasing is now at its highest level on record, accounting for more than 30 percent of new vehicle purchases in the first quarter, according to a report from Experian on Thursday.

Getting Hurt

High levels of leasing poses a threat to lenders, as a growing number of cars coming out of leases will likely depress used-car prices, analysts have said.

“Someone will get hurt in auto lending,” said JPMorgan Chase & Co’s Chief Executive Officer Jamie Dimon during an investor presentation in New York on Thursday. U.S. Bancorp CEO Richard Davis, speaking at the same conference earlier in the day, said the auto-lending market is “overheated,” mainly because of pricing competition.

Auto lenders to the riskiest borrowers, including Santander Consumer USA and smaller subprime competitors, have reported a drop-off in the money they can recover on soured loans in recent months.

To counter the increasing losses, lenders have begun charging higher rates on loans. Average rates on new and used cars was 7.54 percent in the first quarter, the Experian data show, up from 7.4 percent in the first quarter a year earlier.

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