BEIJING: Domestic automotive brands in China are facing considerable challenges, as their market share levels fall and overseas firms enhance their position in the world's most populous nation.

According to the China Association of Automobile Manufacturers, the trade body, industry sales rose by 2.9% to 9.6m units in the first half of 2012, with passenger vehicles enjoying a 7.1% lift, to 7.6m units.

However, indigenous organisations saw demand for passenger vehicles decline by 0.2% compared with the previous year, in contrast to the gains made by major foreign operators like General Motors, Ford and Volkswagen.

Similarly, the market share claimed by Chinese companies in this sector contracted by three percentage points on an annual basis, to 41.4% overall.

Dong Yang, general secretary of the China Association of Automobile Manufacturers, further warned that some 50% of local carmakers could be forced out of business in the next few years given such results.

"The modest growth in the first half hurt every domestic carmaker. There will be no decrease in pressure in the second half," said Xiao Luman, a regional manager at JAC Motors.

Geely, which makes vehicles under its own brand as well as owning Volvo, was one Chinese operator to buck the trend as purchase rates increased by 32% year on year, but believes it is the exception.

"Nearly every local brand has suffered sluggish sales since January. Both sales volume and market share have slipped," Huang Haitao, deputy general manager of sales at Geely, told the China Daily.

Michael Dunne, president of Dunne & Company, an automotive consultancy based in Hong Kong, was more pessimistic still about the current status of Chinese marques, pegging their share at 26%.

This, he suggested, marked a slide from 31% two years ago, and reflects the fact many drivers in the country have become increasingly discerning and knowledgeable than was previously the case.

"Five years ago almost everybody was buying their first car," he said. "Now they're coming around for the second time, and that's separating the stronger brands from the weaker."

Another key contributor to this process has been the introduction of lower cost vehicles by overseas players, such as Nissan Venucia, costing RMB67,800, a highly competitive price point.

Data sourced from China Daily; additional content by Warc staff