Sales of new cars fell sharply in August and are set to decline for the rest of 2010, as weak consumer confidence and the end of the scrappage scheme takes its toll.

Total new car sales fell by 17.5 per cent to just 55,305 units last month, compared to 67,006 in August 2009, the Society of Motor Manufacturers and Traders (SMMT) said. The data marked the second successive month of falls, following the first decline for 12 months in July.

The tumble was partly blamed on the end of the scrappage scheme in March that led consumers to bring forward purchases of new cars over a 10-month period. During the recession car sales crashed in the first of 2009 but recovered after the "cash for bangers" scheme was introduced on 18 May last year. More than 16,000, or a quarter of the market, of new car sales last August were through the scheme.

Paul Everitt, the SMMT's chief executive, said: "New car registrations were down 17.5 per cent in August and conditions will remain challenging through the rest of the year."

Private new car registrations plummeted by 37.8 per cent, as consumers put off making one of the biggest purchases of their lives after property. This contrasted with an 8.2 per cent jump in fleet sales to companies. Diesel-fuelled cars grew their market share to a new high of 52.6 per cent, partly driven by the drop in petrol-powered registrations.

Howard Archer, chief European economist at IHS Global Insight, said: "Just as private sales led car sales earlier this year while the car scrappage scheme was in place, they are now seeing the greatest softness."

Sales volumes of cars are up by 13.2 per cent to 1.3 million so far this year, with private and fleet sales up by a similar amount, boosted by the economic recovery.

The SMMT is forecasting that registrations will hit 2 million this year, a 1.2 per cent rise on last year. The Ford Fiesta was the best-selling model in August, as it has been for the year to date. Mr Everitt said: "The industry enjoyed a better-than-expected first half of the year."

August will be the slowest month of the year and typically only accounts for 3.3 per cent of annual sales ahead of the registration plate change this month. SMMT expects about 10 per cent fewer sales of the new "60" plates in September, down from 367,929 last year.

Mr Archer warned of a challenging period ahead for retailers of cars. He said: "Private sales are likely to be limited appreciably by the serious pressures facing households. These pressures will make consumers very careful about splashing out on as big-ticket an item as a car."

He added: "The substantial fiscal squeeze will increasingly hit public sector jobs and consumers' pockets, while households already face high unemployment, muted earnings growth, elevated debt levels and high fuel prices."

On a brighter note, Mr Archer said it was likely that consumers would bring forward some car purchases towards the end of the year ahead of VAT rising to 20 per cent on 4 January.

_{Source: Independent}