"Even a small city like Guiyang did it, so I won't be surprised if other cities follow suit sooner or later," said John Zeng, Asia Pacific director for industry consultancy, LMC Automotive.

Despite some headwinds, Zeng forecast passenger car sales to grow 10.2 percent in 2013, up slightly from around 7 percent as of end-November 2012. He says if it were not for the struggles of the Japanese makers, the market could grow as much as 13 percent.

Optimists argue that in addition to a recovering economy and pent-up auto demand in inland cities, China's new top leadership could introduce stimulus measures to spur domestic consumption that would help boost auto demand.

"There are reasons for such optimism. Whatever the market ends up with this year, I do expect an improvement of 3 to 5 percent above that," said Bill Russo, a senior adviser at Booz & Co.