New car registrations fell by 11.5% to 128,811 units in January but the decline was in line with industry expectations.
The figures from the Society of Motor Manufacturers and Traders said the January result reflected the loss of the scrappage scheme. In January 2010, 18% of the market was contributed to by the scrappage scheme.
With those registrations stripped out, the volume in 2011 was up 8% on last year.
The loss of the scrappage scheme is expected adversely to affect the market during the first half of 2011. Overall volumes are forecast to decline by 5% in 2011 to 1.93 million cars.
Several factors may have also contributed including the rise in VAT to 20%, uncertainty over the economic setting and potentially a consequence of the bad weather in December.
Paul Everitt, SMMT chief executive, said: “This is in line with SMMT forecasts and marks the beginning of a challenging year for the UK motor industry.
“Consumer confidence is low and it is important that the Government uses the March Budget to help relieve some of the financial pressure on motorists by freezing fuel duty, while providing stability and certainty on motoring taxes. Despite the challenging conditions, the demand for low CO2 emitting and highly fuel efficient cars continues to grow.”
All sales types recorded falling volumes in January, with the private market showing the steepest decline.
Demand for the mini and supermini segment, boosted by the scrappage scheme a year ago, fell sharply this January. Demand for executive, luxury, MPV and dual purpose segment cars recovered strongly.
Demand for diesel cars rose and their market share was once again over 50% in the month. Alternative fuelled cars matched their record share of 1.4% of the market.
The Ford Focus was the best selling new car in January and also the top selling diesel model in the month.
Sue Robinson, RMI Franchised director, said: "The start of 2011 is proving challenging with consumer confidence low as household budgets are being squeezed by VAT rises, fuel price increases and price inflation for most household goods.
“Furthermore, consumers are still concerned about job security with public sector cuts only just filtering through. However, there has also been some increase in footfall during the month which has to be encouraging.”
The RMI believes consumers will return to showooms once they feel they have more confidence and security.
Robinson said: “With rising fuel prices and reducing disposable incomes consumers will be looking for cost effective motoring.
“Not only will the price of vehicles be important but whole life costs including fuel economy, cost of service, maintenance and residual values will become even more important. Smaller, fuel efficient cars with extended warranty periods and low maintenance costs are likely to be popular."
Graham Bushby, head of Baker Tilly Restructuring and Recovery’s Motor Group, said: “It has not been a good start to the year from the consumers’ point of view.
“27% of them are reported by The Nielsen Company and the British Retail Consortium as having no spare cash and their confidence in the economy and their finances has suffered its largest drop in nearly 20 years. Therefore, it was to expected that the retail car industry figures for January may be disappointing.
“Earlier this year, the SMMT were predicting a 5% fall in registrations for 2011 and whilst comparisons are difficult with 2010 which was effected by the car scrappage scheme, the January registrations of 128,811 are the second lowest January figures this century. Ignoring the effects of the scrappage scheme, in the last 10 years January registrations have represented about 7.4% of the eventual year’s registrations which, if it were true for 2011, would shift 2011 registration to just over 1.7m which would be 14% down on 2010 – much worse than the SMMT forecast.”