New car registrations fell 0.3% in February following weak demand that economists found surprising, but the industry expects sales to go up a gear in March despite concerns about consumer confidence.
The Society of Motor Manufacturers and Traders (SMMT) reported a dip in new car registrations to 81,115 units last month from 83,395 in February 2016 following waning demand from both individuals and companies in a traditionally quiet month for new registration ahead of the number plate change in March.
Private new car registrations were down 4.4% year-over-year in February to 36,018 units, compared to the 5% rise in January, while business registration dropped 5.3% to 1,398, although fleet registrations rose 3.3% to 45,699.
Buyers also registered a record 3,308 alternatively fuelled vehicles (AFVs) in February, up 48.9%, taking 4% of the market share, partly driven by new AFV models on sale.
Petrol registrations rose 5.8% to 42,826 units and demand for diesel cars fell 9.2%.
SMMT chief executive Mike Hawes said: "February is traditionally one of the quietest months of the year and a steady performance was expected following another year of record growth in 2016.
"We expect to see the market bounce back in March as buyers take advantage of the new 2017 plate, as well as the last chance to buy a car eligible for current lower vehicle excise duty rates before they change on 1 April."
However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that although February is traditionally quieter the decline in sales was "surprising" given that vehicle excise duty, an annual tax on car ownership, will rise sharply at the beginning of April.
"Most potential car buyers will be around £400 better off over the three years by buying a car before April than afterwards, although the exact savings vary according to the vehicle's emissions and price.
He said that that the fall in sales is therefore a reflection of the weakening fundamental drivers of car purchases.
"Consumer confidence has fallen to levels consistent with sales declining by at least 5% this year. In addition, most manufacturers have increased list prices by around 2% in a first step to responding to sterling's depreciation. Indeed, sterling's drop against the euro points to a further 5% rise in new car prices over the next year.
"Meanwhile, unsecured borrowing costs effectively have flatlined since October, having fallen sharply over the previous three years. As a result, February's fall in car sales is just a taste of the weakness to come after April's vehicle excise duty changes."
He was not alone, Howard Archer of IHS Markit said although marginal, February's drop in sales fuels belief that 2017 will become an increasingly difficult year for the car industry after the record sales last year.
He noted that while the drop followed a 2.9% year-on-year increase in January, it was the second drop in three months in car sales as there had also been a 1.1% year-on-year fall in December.
"Consumers are now seeing their purchasing power increasingly diluted and this squeeze looks certain to intensify over the coming months as inflation rises further and earnings growth is muted," Archer said.
"Furthermore, a likely weakening economy and more uncertain outlook may well make businesses more circumspect in their car purchases - perhaps taking longer to replace fleets.
"Meanwhile, the sharp weakening of the pound makes it more difficult for car dealers to offer attractive deals on imported cars - with the result that some car manufacturers have raised prices and more increases seem inevitable during 2017."