New car sales fell by 11.5% to 128,811 last month compared with January 2010, new figures show.
The Society of Motor Manufacturers and Traders (SMMT) said the decline was in line with its forecast and partly reflected the ending of the car scrappage scheme.
Its figures also reveal that the market share for cars with lower CO2 emissions continued to increase, rising by more than 65% in January.
SMMT chief executive Paul Everitt said January’s fall in new car sales marked the beginning of a challenging year for the UK motor industry, adding: “Consumer confidence is low and it is important that 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.”
Just over 65,000 new diesel cars were sold in the UK last month compared with almost 62,000 petrol models, said the SMMT.
New car registrations have now fallen for seven months in a row following January’s 16,668 reduction in sales.
The SMMT said last month’s rise in VAT to 20% also had an effect on sales, as well as uncertainty over the economy, although the industry group mainly blamed last year’s ending of the scrappage scheme under which motorists were offered a discount on new cars for trading-in older models.
In January last year, almost one in five new cars were sold through the scrappage scheme, and the SMMT said it expected the knock-on effect to hit the market during the first six months of 2011.
Total sales volumes are now forecast to fall by 5% this year, to 1.93 million.