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A spokeswoman for BMW said the company is “paying high attention” to the dealers’ concerns.

Tension between dealers and auto makers, in China or elsewhere, isn’t new. But growth in China’s passenger-car sales decelerated to 9.8% in the first 10 months of the year from a 15% increase in the year-earlier period, for reasons ranging from China’s slowing growth to local efforts to stem traffic to a crackdown on official corruption. Dealers say the sales environment may be even softer because the figure represents auto makers’ shipments to dealers, not dealer sales to consumers.

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“Many dealers are buying many more cars than consumers want,” said Li Jinyong, president of Pangda Automobile Trade Group Co., China’s third-largest auto dealer by revenue, which sells more than 80 brands. Its gross profit margin from sales of new cars fell to 4.9% in the first half of this year from 6.8% for all of 2013.

“Sales at the retail level are weaker than what car makers report,” Mr. Li said.

The problem is particularly acute at BMW, which has been more aggressive than rival luxury-car makers in expanding its dealer network in China. The company has spent billions of dollars in the hope of overtaking Audi AG to become the No. 1 seller in what is expected by many to become the world’s largest market for luxury cars.

But now BMW dealers are seeking more cash rebates to offset losses from selling new cars, dealer executives say. Currently BMW grants dealers a 5% to 6% rebate for selling a new car as well as other performance-based bonuses, a senior executive at a major BMW dealer group said.

“This year the inventories are too high. Sales growth can’t keep up with the rise in inventories. Dealers must offer discounts greater than rebates to sell cars,” said the person.

The executives said dealers are also pushing back against next year’s sales targets. “BMW is still aiming for more than 10% growth in 2015. But I think it’s too aggressive. I hope BMW could set a smaller sales target for me this year,” said another representative of a large BMW dealer group.

The BMW spokeswoman said the company has been pursuing sustainable growth in China. “Some dealers are facing [a] challenge,” she said. “We are in close discussion with our dealer partners to reach a proper agreement in a timely manner.”

China now has more dealerships than the U.S. after years of furious expansion, according to China’s latest Auto Market Almanac. Last year China had 22,518 cars dealers, up 30% from 17,372 dealers in 2011 and compared with a 24% rise in passenger-vehicle sales in China over the same period.

Data from the China Automobile Dealers Association show dealers holding on average 47 days’ worth of inventory this year, roughly in line with last year. But CADA says 70% of the dealers are unprofitable this year compared with 30% in 2010.

Zhongsheng Group Holdings Ltd. , China’s fourth-largest dealer group by revenue, saw its gross profit margin from selling new cars fall to less than 4% in the first half of this year from 4.2% last year. The gross profit margin at Baoxin Auto Group Ltd. , the No. 6 dealer on the mainland, dropped to 5.4% from 6% over the same period. Both cited rising competition and the slowing market.

“Many dealers have come under huge financing pressure. They have to sell cars at great discounts,” said Shen Jinjun, chairman of CADA.

Jerry Wen, a dealer for a Japanese auto brand in the eastern city of Hangzhou, has been grappling with dropping customer visits since March, when the local government started to curb car purchases to ease traffic congestion. Still, he is sticking with the agreement he made with the auto brand earlier this year to buy a set number of new cars.

“If I fail to buy 50% of the number of cars I promised, I will likely lose the contract with the car maker without any compensation for my investment in the dealership,” said Mr. Wen.

In an open letter last month, the China Auto Dealers Chamber of Commerce, a unit of the Communist Party-affiliated business group All-China Federation of Industry & Commerce, blamed auto makers’ excessive capacity expansion in China for dealers’ difficulties. It called on dealers to reject overly high sales targets and unpopular models. “Dealers shouldn’t pad sales numbers in exchange for short-term interests,” it said.

—Rose Yu and Colum Murphy