* Output drops 14.2 pct from August, Anfavea says
* September sales dip 31.4 percent from August
SAO PAULO, Oct 4 (Reuters) - Brazilian car output and sales sank in September, following a spike in August, as extended tax breaks for consumers lost their appeal and carmakers grew wary of a potential rise in inventory.
Automobile production in Brazil fell 14.2 percent and sales slumped 31.4 percent in September from the prior month, the national automakers' association, Anfavea, said on Thursday.
Automakers in Brazil produced 282,540 new vehicles last month, while sales totaled 288,108 units, Anfavea added. Auto output had grown 10.6 percent and sales rose 15.3 percent in the previous month.
Flagging sales reflect that the impact of tax incentives announced in May is diminishing. Originally due to expire in August, the incentives have since been stretched out to the end of October to bolster an emerging economic recovery.
Local assemblers account for more than 20 percent of Brazil's industry, which has struggled with high costs and a weak global economy over the past year. Some analysts have said the short-term incentives and other protectionist measures are only delaying adjustments needed to make factories more competitive.
Before the scheduled end of the breaks, dealerships launched massive promotions in early August, helping set an all-time monthly sales record that likely weighed on demand in September.
In the first nine months, Brazil's vehicle production fell 5.7 percent from the year-earlier period, putting the indicator on track for its first annual contraction in a decade.
Brazil is a key market for the world's biggest automakers, with most local production coming from Italy's Fiat SpA , Germany's Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co.
Fiat remained first-place in Brazil car sales, with 67,518 cars and light commercial vehicles sold in September, down 31 percent from the prior month. Volkswagen was second with 62,203 vehicles, falling 30 percent from August.
GM sold 47,787 cars and light trucks in September, down 37 percent from the month before, while Ford's sales fell 25 percent from August to 23,384 vehicles.