Volkswagen Group reported a rare dip in global sales of its core VW brand in July and said business conditions may remain tough for an industry beset by slumping demand and overcapacity.

VW brand sold 466,100 vehicles last month, down 0.5 percent from July 2012, VW said today. The brand accounts for about half of the automaker’s global deliveries.

It was only the second month of falling sales in three and a half years. Since a fall in December 2009, VW brand sales rose for 38 straight months until March 2013, when they fell 1 percent. Deliveries were up again in April, May and June.

“Given that the uncertain economic conditions will continue over the coming months, we are keeping a very close eye on developments in global automotive markets,” VW sales chief Christian Klingler said. The “market situation remains challenging,” he added.

VW brand sales increased by nearly 4 percent to 3.38 million vehicles in the first seven months as gains in China offset a weak European market.

Seven-month VW deliveries plunged 9 percent in Germany to 328,400 cars while pan-European sales were down 7 percent to 980,000.

The multi-brand group withstood most of last year’s slump in major European markets thanks to growth overseas and a model portfolio ranging from small fuel-efficient vehicles such as the VW Up city car to ultra-luxury sedans including the Bentley Continental.

Despite the latest drop in brand sales, VW continues to outperform rivals. Half-year group deliveries, including luxury nameplates Audi and Porsche, were up 6 percent to a record 4.7 million, powered by gains in China. Seven-month data for VW Group deliveries will be published on Friday.

From the press release:

The Volkswagen Passenger Cars brand delivered 3.38 (January-July 2012: 3.26; +3.7 percent) million vehicles worldwide from January to July.

The brand handed over 466,100 (July 2012: 468,200; -0.5 percent) vehicles to customers in the month of July.

“The Volkswagen Passenger Cars brand has produced a solid performance so far in a market situation that remains challenging. Given that the uncertain economic conditions will continue over the coming months, we are keeping a very close eye on developments in global automotive markets”, Christian Klingler, Board Member for Sales and Marketing for the Volkswagen Group and the Volkswagen Passenger Cars brand, said in Wolfsburg on Tuesday.

The Volkswagen Passenger Cars brand delivered 0.98 (1.05; -6.8 percent) million vehicles to customers on the overall European market in the first seven months.

With the market situation in Western Europe (excluding Germany) remaining difficult, deliveries there fell by 6.8 percent compared with the same period in 2012 to 492,400 (528,200) units. Deliveries in the home market of Germany were down 9.1 percent to 328,400 (361,500) units.

In Central and Eastern Europe, the company handed over 154,900 (157,100; -1.4 percent) vehicles to customers, and 90,600 (95,600; -5.2 percent) units were delivered in Russia.

In contrast, the brand grew deliveries by 17.0 percent in the Asia-Pacific region from January to July, handing over 1.48 (1.27) million vehicles to customers there. 1.36 (1.14; +18.9 percent) million vehicles were delivered in China (incl. Hong Kong) during the same period. In India, deliveries dropped to 36,900 (41,400; -11.1 percent) units.

In the North America region, Volkswagen Passenger Cars grew deliveries by 3.6 percent to 359,300 (346,700) units in the period to July, of which 242,600 (245,700; -1.3 percent) models were handed over in the United States.

Deliveries in the South America region from January to July dropped by 11.3 percent to 419,100 (472,700) units, of which 314,900 (360,900; -12.8 percent) vehicles were handed over in Brazil.