Manheim’s Dealer Dashboard showed retail sales in May fell from an average of 12.8 to 12.1 as consumers continue to tighten their belts.
Prospect enquiries actually increased marginally from 33.3 enquiries in April to 33.6 in May, but conversions of test drives to sales fell 2.3% to 36%.
John Simpson, managing director of Manheim Retail Services, said: “Record low interest rates should ordinarily be underpinning a strong retail recovery.
"But with inflation remaining stubbornly high and economic growth appearing anaemic at best across most ‘big ticket’ sectors, the outlook is challenging.
“Rather than holding back for the market to pick up, dealers need to innovate, to think creatively about stimulating retail traffic.
"The virtual showroom should be a major focus with strategies for pushing used car stock to relevant portals.”
Simpson warned the market is likely to get tougher before it improves so waiting for a change in the economy should simply not be an option.
In the wholesale market, stock for retail values continued to slip in May, with an average drop of £231 taking values to £7,966. Retail stock was generally older, while a quiet Easter saw a build up of stock that washed through to May, affording buyers the opportunity to cherry-pick.
This had a negative impact on first-time conversion rates which fell across every segment to an average of 58%.
In the dealer part-exchange market, average values slipped by just £10 to £2,321, a strong performance despite the increase of stock available.
Cars on average were younger than a month ago, but with greater mileage.
At 73% first time conversion rates did not recover from the Easter lull.
Mike Pilkington, managing director, Manheim Remarketing, said: “The message to dealers is clear: well prepared vehicles, with reserves set according to the difficult trading conditions, will attract buyers.”