Due to the high research and development costs, energy-saving vehicles, especially electric vehicles, are priced higher than other models, which has had a drag on sales.

Richard Wang, marketing manager of China Automobile Trading Co Ltd, said European brands have been the ones to benefit from the soaring demand for luxury vehicles from the middle class.

"Premium brands are growing much faster than mid to low-end ones in China," Wang said.

"And a large portion of sales are European brands, such as Mercedes Benz, Audi and BMW."

Reacting quickly to the government's policy on encouraging greener vehicles, is another reason for the ongoing success of European brands in the Chinese market, he said.

"As they already have good experience in new energy technology, they can easily transform this knowledge into their product designs, switching their direction to meet the government requirements."

He said Audi and BMW have already shifted market focus to lower emission models and the new Mercedes-Benz B-class has also adopted the 1.6 L engine.

The success of foreign car brands has, however, squeezed the market for local brands.

Over the past eight months, sales volumes for local brands - which still account for 40.3 percent of the total passenger car sales - have declined by 2.4 percentage points over the same period of 2011.

In contrast, during the same period, German brands have increased their market share by 2 percentage points.

Analysts believe local brands will continue to have a tough time as joint-venture brands are now reaching out to the lower-end markets, which used to be the mainstay of Chinese brands.

Rao Da, secretary-general of China Passenger Car Association, estimates that September will be a better month for dealers with some favorable policies expected to come into force in the next two months.

The Chinese government issued a policy last month exempting passenger cars with less than seven seats from tolls during major holidays, which will come into effect in October.

China's economic growth is expected to recover mildly during the third quarter, another good sign, given the auto market generally mirrors the macro-economy, Rao said.

But he adds the growth rate of the auto market may not be as impressive as it was last year, when consumers rushed to buy cars before the government subsidies for energy-saving cars expired.

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