More than two million cars were sold in the UK last year, 1.8% more than in 2009, a new report has shown.
However, the motor industry expects to face a difficult few months because of the "extremely challenging" economic conditions, it added.
The Society of Motor Manufacturers and Traders said sales rose by 35,847 in 2010 to 2,030,846, but it was a year of two halves following the end of the car scrappage scheme in March.
Sales surged by almost 20% in the first half of the year but fell back by 13.8% in the second six months, the new figures show.
Paul Everitt, chief executive of the SMMT, said 2010 was a "year of recovery" for the motor industry, adding: "Economic conditions remain extremely challenging, but industry expects demand to strengthen in the second half of the year.
"Competition in the retail sector will intensify as the industry seeks to re-balance demand across its new and used car and service and repair business.
"UK motor manufacturing recovered particularly well in 2010 and the outlook is for further steady growth this year."
Car sales fell by 18% in December compared with the same month in 2009 to 123,817, with the market just below expectations.
The best-selling car last month was the Vauxhall Astra although the Ford Fiesta was the top-selling model for the whole of 2010, with sales of more than 100,000.
More than 100,000 cars were sold through the scrappage scheme last year, around 5% of the total. The SMMT pointed out that, although car sales were up by 1.8% last year, the 2010 market was still the second lowest in the past decade and almost 375,000 down on the 2007 figure.