Vehicle sales in China grew 2.2% year on year in July to 1.28m units, state media said.
However, sales were down more than 11% from June, when they reached 1.44m units, the official China News Service reported, citing figures from the China Association of Automobile Manufacturers, according to news agency AFP.
Auto sales in China rose over 32% last year to a record 18.06m units.
But the government has phased out sales incentives such as tax breaks for small engine vehicles, originally introduced to ward off the impact of the global financial crisis.
Auto sales fell for two straight months in April and May, although they rebounded again in June, rising 1.4% year on year.
The association warned last month that sales in China would hit the brakes this year with forecast growth of 5% in 2011, down from an earlier forecast of 10-15%.
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For the January-July period, sales rose 3.2% to 10.6m vehicles, the association said.
Passenger cars rose 6.7% to 1.01m units while commercial vehicle sales dropped 12.2% to 263,500.