Volkswagen’s two Chinese car-making joint ventures reportedly saw sales rebound in July after price cuts to ward off rivals helped reinvigorate buyers, but analysts warned of a price war ahead.

Reuters said Volkswagen’s flagship Shanghai plant also beat off a challenge from General Motors, surging past it in July after being outsold by the US firm’s Chinese venture for the first time in June.

While final industry-wide numbers are expected soon, state media is already speculating that, for the first time, year-on-year sales fell in July, the report said.

Reuters noted that the number of cars leaving Chinese showrooms in June fell for the third straight month, though grew slightly on the year as Beijing put the brakes on auto loans as part of efforts to slow a racing economy – the market slowdown had prompted a round of price cuts, started by GM in May and followed by Volkswagen in June.

Volkswagen’s two main ventures – one with Shanghai Automotive Industry Corp and the other with First Automotive Works – sold 50,215 cars last month, up 52.8% from June, company officials told the news agency on Monday.

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“Pricing pressure will worsen and competition will heat up now that companies can look at Volkswagen and see price cuts working,” analyst Zhang Xin at Guotai Junan Securities told Reuters. “The market is slowing and prices are on the way down – the trend is very clear.”

Volkswagen chopped prices by up to 11.7%, following an up to 11% cut made by GM, the report said.

“We cut prices later than GM, so they were able to use that to their advantage and outsell us in June,” Shanghai VW spokesman Hu Zhiwei told Reuters. “We’ve been in China for the last 20 years. We are not going to lose our top spot without a fight.”

Shanghai VW reportedly sold 28,060 cars in July, up 39.7% from June, while Shanghai GM said it sold 19,660 vehicles, down 18.2% from June, but still up 20.3% on the year.

Volkswagen, long China’s pre-eminent car maker but a mid-ranked player on the global stage, has planned to sell 820,000 units in 2004, up about 19% on a year earlier, but an industry source told Reuters that data on national sedan sales for July had yet to be finalised.

Volkswagen’s venture with FAW in the northeastern Chinese city of Changchun reportedly said on Monday it sold 22,155 cars in July, or 73.3% more than in June.