After Ford (F  ) sales dropped by 55% in China year-over-year, it's safe to say that automotive makers in general are facing obstacles in the Chinese market.

With an estimated 28 million vehicles expected to be sold this year, China is still the world's largest automotive market - but the market has contracted by 14% since last year

"This is the first sustained downturn in memory," said Michael Dunne of ZoZoGo, an automotive advisory firm. "We would have to go back to the Asian financial crisis in 1998-1999 to see the last time China had flat or down sales for four months or more in a row."

The primary cause for the market slowdown is that the Chinese government abolished popular but irregular types of lending, including a peer-to-peer lending system that allows fluid money lending between upper and middle classes to accelerate growth through microfinancing. Since January of 2018, 25% of these types of transactions have been prevented, so that consumers are unable to scrounge up the capital for an automotive investment.

Moreover, consumer confidence in China is at an all-time low, thanks to ongoing US-China trade war uncertainty and a slowing economy. This has exacerbated bearish sentiment in the country.

"When times are good, the Chinese are really bullish and bold. But when times are uncertain, they are exceptionally conservative," said Jacob George of J.D. Power Asia Pacific. "They overcompensate when things are uncertain, meaning they hold off on purchases. And it is contagious. Word goes out now is not the good time to buy a car, and it starts circling around. That sounds a lot like the American concept of 'consumer confidence' but there is a special spice to the Chinese mentality that makes it distinct."

Ford in particular has been performing poorly because it hasn't been innovating at the same pace as some of its competitors, such as GM (GM  ). To ameliorate this, Ford plans to introduce 50 new cars by 2025.

Additionally, Ford Greater China CEO Anning Chen issued a statement saying: "China is absolutely essential to Ford globally. The management team of Ford China is focusing on our China Turnaround Plan. We are building a robust management team and efficient organizational structure to drive the business forward. To win against the competition in China, we must better understand the Chinese customer, respond to market changes quickly, introduce more products that customers like and want, streamline the organization, improve the capability of our team, speed up decision-making, and strengthen our relationships with dealers."

There is also the issue of "zombie factories," or factories that were created as a result of rapid expansion into China initially by automotive companies, but now are either inefficient or unused. These may be disrupting supply by creating costly inefficiencies and stemming innovation. Companies should first work on eradicating such entities before dealing with demand-side factors.