Domestic automakers continue to lose market share(2)

Meanwhile, the purchase limits imposed by a growing number of cities to ease traffic congestion have also weighed on sales.

Large cities such as Beijing, Shanghai and Guangdong have all adopted license plate auctions or lotteries to limit the growth of automobile ownership and combat gridlock and pollution. More cities are mulling similar measures.

Since securing a license plate has become more difficult, domestic brands have fallen out of favor, as Chinese buyers are more inclined to put their hard-earned plates on foreign cars, which they perceive to be of higher quality due to their cost.

For Feng Hui, a prospective car buyer in Shanghai, Chinese brands are not an option.

"It will cost me between 80,000 to 90,000 to obtain a license plate. I don't want a car that costs even less than that," Feng said. "It's not worth it."

The sales decline has led some companies to reinvent themselves in an attempt to win back customers.

Chery Auto, one of the country's biggest automakers, is streamlining its lineup by reducing its number of auto models from more than 20 to a dozen.

Domestic brands like Great Wall Motor, Chery and Geely are also making efforts to step up investment in automobile safety research.

Hu said domestic automakers have realized that there is great need for them to change, as focusing sheerly on their production scale will not reverse declining sales.