A significant drop in demand for Japanese-brand automobiles in China, triggered by a territorial dispute between China and Japan, has resulted in production rollbacks at a number of Chinese vehicle-assembly plants.

Although the drop in output may cut into China’s overall builds in 2012, it’s also possible that increased production of domestic brands could make up the difference.

China output totaled 1,660,875 units in September, its highest volume since March. The 3.5% uptick, however, was the smallest year-over-year increase in seven months.

Light-vehicle builds rose 5.0% to 1,581,956 units, with cars and light trucks posting increases of 6.9% and 2.4%, respectively. Medium/heavy trucks fell 22.7% to 63,957 and buses tumbled 6.6% to 14,962.

Shanghai GM was China’s top vehicle manufacturer in September. With a 7.4% share of production and 123,391 vehicles built, the auto maker edged out FAW Volkswagen by 1,226 units. SAIC-GM-Wuling was the third-largest producer with 121,087.

Guangzhou Fiat entered the market in the month with the introduction of the Fiat Viaggio. The auto maker manufactured 934 units of the midsize sedan at a Guangzhou plant with annual production capacity of 150,000 vehicles. The Viaggio is the first car released by Guangzhou Fiat, and the auto maker plans to launch one new model each year.

FAW-VW built 39,827 Jettas, 2.4% of September’s total build, making it China’s most-produced model for the third straight month. Shanghai GM’s Buick Excelle fell just short of the top spot, producing 38,067 units, or 2.3% of industrywide production.

China produced 14,131,185 vehicles through the third quarter, up 5.0% from like-2011.