This article analyses the severe situation of automobile industry and its cause in China. In order to meet the challenge China will face after its entry into the WTO, different measures should be adopted for various types of automobiles, according to the actual situation： to devote major efforts to improving agricultural vehicles; to further develop minicars which turn out to be an existed and promising market; to speed up the development of new electric vehicles; to enhance the competitiveness in the international market of state-owned giant automobile companies by building up their capability of developing medium-low grade automobiles in-house and; to develop medium-high and high grade automobiles with much more relaxed policy for at trading foreign funds. Hence, national industry will increase their autonomous intellectual property and produce the absolute majority of automobiles that caters to the demand of rural and urban residents in the country.