The Society of Motor Manufacturers and Traders (SMMT) said its figures suggested a “backlash” against diesel cars had resulted in an own goal for the environment.
It reported a drop of 5.7% in new car sales during 2017 – the biggest fall since 2009.
It said 2.54 million new cars were registered in 2017 compared with 2.69 million the previous year – with diesel sales providing the main drag. There was a 35% increase in electric vehicles leaving showrooms.
Demand for diesels fell by 31% last month and 17% over the year, the SMMT said, arguing it had dented progress in cutting tailpipe CO2 emissions.
Its figures measured the first annual increase since 1997.
It blamed a change in attitudes against cleaner diesel technology. It did not provide figures for NOx, or nitrogen oxide, emissions produced by diesel engines that are blamed by critics for thousands of deaths from respiratory conditions.
SMMT chief executive Mike Hawes said 2017 sales had proved “very, very volatile”, with “confusion” over the fate of diesels combining with Brexit-linked uncertainty to hit consumer and business confidence.
He said Government plans to ban the sale of new conventional petrol and diesel cars from 2040, along with a car tax hike on new diesel models in November’s Budget, had damaged demand.
New car sales to private motorists were down 6.8%, fleet down 4.5% and business down 7.8%.
The SMMT admitted it was not all doom and gloom for the industry as 2017’s figures still represented the third best year for new car registrations in the past decade and market share for electric or hybrid vehicles continued to grow strongly.
But it said it was expecting a similar fall in volumes in the current year – of between 5-7% – with diesels likely to face further pain.
Mr Hawes said: “Keeping older vehicles on the road will not only mean higher running costs but will hold back progress towards our environmental goals.
“Consumers should be encouraged to buy the right car for their lifestyle and driving needs irrespective of fuel type – whether that be petrol, electric, hybrid or diesel as it could save them money.
“2017 has undoubtedly been a very volatile year and the lacklustre economic growth means that we expect a further weakening in the market for 2018. The upside for consumers, however, is some very, very competitive deals.”
The number of new cars sold in the UK fell for the first time since 2011 in the last year, hurting the battle to combat carbon dioxide emissions.