About one-third of car dealers in China missed their sales targets in the first half of 2012 and 49 percent posted losses, J. D. Power's survey showed.
Analysts say the sales for the first half might be negatively influenced by the rapid expansion of auto companies and overcapacity.
Only 26 percent of the car dealers managed to make money in the first six months compared with 84 percent at the same time in 2009. Domestic brands suffered the most, with only 15 percent making a profit.
China's auto market had a sudden drop in demand in 2011 but the number of auto dealers grew 21 percent year-on-year to 16,300, resulting in large inventories.
Constant launching of new car models is also leading to overstocking because it shortens a car life cycles.
Overcapacity is another problem facing the Chinese auto industry. Analysts estimate that China's auto production is 35 percent more than the market demand, Beijing Morning Post reported.
Analysts say that the sales structure should also be changed. For a typical domestic dealer, 90 percent of operating income comes from sales of new cars, while in a mature market the figure is around 55 percent, with the rest coming from second-hand businesses and after-sales services, Beijing Morning Post reported.
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