The only positive news was record registrations in December, up 8.7% to 156,866 units on 2004. This was fuelled by high diesel sales in the month which saw the end of tax breaks for Euro IV models.
Diesel sales in 2005 were up 40.6% compared to last year at 897,887 units.
"Despite a tough 12 months, a record December has seen us through to a respectable year-end total," said Christopher Macgowan, chief executive of the Society of Motor Manufacturers and Traders.
"December diesel registrations boosted the total as company car drivers took advantage of the 3% tax waiver before the end of the year. However, the economic slow-down in 2005 hit showrooms, and we expect 2006 to be another tough year for the industry. Dealers will continue to fight hard for every sale."
The overall slow-down in the new car market in 2005 lay firmly within the private sector. The weaker economy and growing concerns over cost pressures saw the private market fall 123,553 units – down 10.3%.
The Ford Focus remained the UK's best seller for the seventh year in a row. It was also the top seller in every month of 2005.
The Vauxhall Astra took second place, up from sixth in 2004. Small family cars in the lower medium segment rose 32,212 units in 2005, making it the largest segment for the first time. The 4x4 segment also saw growth, up 7,953 units to 187,392.
The supermini, lower medium and upper medium segments now make up 78.8% of the market, totalling 1,921,362 units.
Diesels took a record 36.8% of the year’s registrations as their volumes jumped to a record 897,887 units.
Diesels took a record 45% share of the new car market in December. Company car drivers pulled forward registrations of diesel cars with Euro IV engines to benefit from the 3% company car tax waiver.
"This is the first time since 2001 that sales have fallen below 2.5 million," said Sue Robinson, franchised dealer director of the Retail Motor Industry Federation (RMI).
"The decline in the market is not insignificant. Retailers say the main reason seems to be nervousness on the part of the consumer: the fall is mainly from private buyers. This mirrors the high street experience over the past few months - interest rate rises in 2004, increasing taxation and a general feeling of insecurity are all playing a major part."