BEIJING: Local automotive manufacturers have seen their market share fall by five percentage points in China during the last few months, and now take just over a third of sales in the country.

The China Association of Automobile Manufacturers (CAAM), the trade body, reported that sales of passenger vehicles climbed by 11% in July on an annual basis, reaching 1.12m units.

Within this, however, the market share held by indigenous marques stood at a modest 37%, measured against a total of 39% in June, and 42% in May.

"Local brands are about to face as tough a situation as they had encountered during the financial crisis," Chen Shihua, a senior official at CAAM, told the Wall Street Journal.

To assess changing behaviour, CAAM partnered with Nielsen to survey buyers in Tier 1 cities like Beijing, Guangzhou and Shanghai, and found 58% were making at least their second category purchase.

Members of this audience generally preferred acquiring cars priced between RMB120,000 and RMB300,000, a trend favouring more expensive foreign brands.

"Buying interest has been shifting from lower-end models to higher-end models in recent years," Xu Minfeng, an analyst at Central China Securities, said. 

"It's very difficult for people to buy a car in some cities, like Beijing, so people are inclined to buy a higher-end model when they get such a precious opportunity."

The key problem in Beijing takes the form of tight limitations placed on purchases of new cars, capped at 20,000 per month, to try and cut congestion. Shanghai, Guangzhou and Guiyang have also implemented restrictions on car ownership.

"The auto-purchasing limitations encourage sales in the short term but not the longer term," said Zhang Xin, an analyst at Guotai Jun'an Securities. "Traffic jams, the high cost of parking and more and more subways are all reasons the auto industry will not develop as fast as it has in the last few years."

Over the longer term, it is possible that the intense competition and oversupply of vehicles was also exerting pressure on prices, especially for cheaper models,

"Facing sluggish demand and rising inventory, dealers will increase discounts and incentive offerings in the coming months," said Cheng Xiaodong, from the National Development and Reform Commission.

Data sourced from Wall Street Journal; additional content by Warc staff