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With stocks at record highs and the economy shows signs of growth, autos—which typically do well in times of economic growth—are slumping.
China's stock market has been exceptionally volatile this year. While it is still up 22 percent year-to-date, the Shanghai Composite is down 23 percent from its June 12th high. The dramatic downturn has spilled over into other sectors of the economy, experts say, underscoring key areas of vulnerability to the economy.
This week Barclays released a bearish note downgrading autos to negative from neutral, citing several quarters of sluggish growth in China, where industry growth has stalled.
Read MoreThe (sad) truth about China's rally
The world's largest auto market saw auto sales tumble 2.3 percent in June year-over-year, according to China's Association of Automobile Manufacturers. It's the first year-over-year decline in monthly auto sales in more than two years.
That has left some analysts concerned, such as Barclays, which cut General Motors' price target to $36 from $44. The firm said the automaker will get hit the hardest by China headwinds, and that major risks stem from the deteriorating conditions in the Chinese auto market.
Barclays also wrote that there aren't enough catalysts to suggest any "meaningful upside" for the stock for the rest of the year.
Additionally, China poses a risk to GM's margins as inventory outpaces sales growth, the firm added. According to the note, the firm expects "sell-side estimates to come down and management to withdraw its guidance on the region."
Growing evidence suggests that collateral damage from China's travails may extend beyond just the two U.S. auto giants. This week, Bloomberg News reported that Audi is jettisoning an internal target to sell 600,000 cars in the country this year, as demand for luxury vehicles is sapped by the stock market rout.
Barclays also gave a downbeat forecast to auto suppliers Borgwarner and Delphi Automotive. Borgwarner's price target was reduced to $55 from $70, while Delphi was cut to $81 from $99. China is a key growth driver for both stocks given their significant exposure to the region, the firm said.
Additionally, Barclays said it sees limited upside for both stocks as volumes continue to weaken.
All three stocks have seen rough stretches in the past three months, with General Motors down 16 percent, Borgwarner down 14 percent and Delphi Automotive down 6 percent.
During the second quarter, China margins struggled with negative pricing trends due to an uptick in inventory. According to Barclays, sales growth in China is stalling, and production needs to fall more to correct inventory.
The firm expects a similar pattern into the 3rd and 4th quarters, and could potentially extend through 2nd half of 2016 due to lack of evidence supporting economic stabilization or recovery.
Despite the negative outlook on the industry, the Barclays note did offer hope.
If China's June sales swoon turns out to be a one-time event, and if Europe production growth accelerates beyond current expectations, then the firm could reassess its bearish position.
For now, however, Barclays expects "wealth impact and psychological impact to linger on the psyche of Chinese consumers," suggesting more negative growth.