July registrations fell 6.6% at 175,277 units, The year-to-July total also fell 5.9%, with private registrations down 10.8%.
Diesel sales provided a brief ray of hope, bucking the market trend with a 1.5% rise last month.
Christopher Macgowan, SMMT chief executive, said: "The record volumes of the last few years are well behind us. Consumers and manufacturers alike are feeling vulnerable and we don't see any respite in the short to medium term. We are hoping demand will stabilise over the next year and we will once again see a return in consumer spending. However, as the last seven months have shown, times are tough and the motor industry is feeling the pinch."
Sue Robinson, director of the Retail Motor Industry Federation (RMI) National Franchised Dealers Association, said: ''The new car market is still settling down following several years of exceptional sales levels. This has been compounded by the growing popularity of nearly-new second hand car sales, which provide new car status to consumers at used car prices."
However, she added, the 0.25% drop in interest rates announced today by the Bank of England could remind consumers of the attraction of a new car in time for September's number plate change: "The rate drop should have a positive impact on new car sales during September, giving a boost to the upcoming 55 plate."
The new car market has fallen in 15 out of the last 16 months. Rising costs for manufacturers and the reduction in consumer demand has hit volumes.
July's total is 2.2% - or 3,973 units - lower than the monthly 1999-2004 average of 179,250 units.
The Ford Focus took its regular number one slot in the overall best sellers' list and also took top diesel honours in July for the first time this year.
Lower medium segment cars - such as the Focus - have shown the best growth over the course of 2005, up 6%.
But they, like the overall market, recorded a decline in demand in July.
The diesel market posted its 58th successive monthly gain in July 2005, although at a more modest 1.5%.
Previous growth in diesels and general market trends suggest that the first decline in diesel volumes, in almost five years, is likely, says the SMMT.
Diesel penetration continues to climb and has averaged 34.9% of the market over the year-to-date, up from 31.3% a year ago.
For a breakdown by manufacturer of July registrations click here.