New car registrations in the UK fell by 11.5% to 128,811 units in January in line with the SMMT's forecast and, in part it said, reflected the loss of the scrappage incentive scheme (SIS).

"New car registrations fell by 11.5% in January. This is in line with SMMT forecasts and marks the beginning of a challenging year for the UK motor industry," said Paul Everitt, chief executive.

"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."

Several factors may also have contributed to the fall including the rise in VAT to 20%, uncertainty over the economic setting and potentially a consequence of the bad weather in December.

In January 2010, 18% of the market was contributed to by the SIS. With those registrations stripped out, the volume in 2011 was up 8% on last year. The loss of the SIS is expected adversely to affect the market during the first half of 2011. Overall volumes are forecast to decline by 5% in 2011 to 1.93m cars.

All sales types recorded falling volumes in January, with the private market showing the steepest decline. 

Demand for the mini and supermini segment, boosted by the SIS a year ago, fell sharply this January. Demand for executive, luxury, MPV and dual purpose segment cars recovered strongly. 

Demand for diesel cars rose and their market share was once again over 50% in the month. Alternative fuelled cars matched their record share of 1.4% of the market.

UK-built cars took a 12.9% share of the January market, unchanged from January 2010.

The Ford Focus was the best selling new car in January and also the top selling diesel model in the month.

Sue Robinson, RMI franchised director, said "the start of 2011 is proving challenging with consumer confidence low as household budgets are being squeezed by VAT rises, fuel price increases and price inflation for most household goods. Furthermore, consumers are still concerned about job security with public sector cuts only just filtering through.  The bad weather in December has had some knock on effect to January, as consumers made purchases that were put off because of the snow.

"There has also been some increase in [showroom traffic] during the month which has to be encouraging.

"Looking forward, we believe consumers will return to showroom once they have more confidence and security. Manufacturers are responding to market conditions offering a wide range of incentives to encourage consumers to buy, making it an extremely good time to buy a new car.

"With rising fuel prices and reducing disposable incomes consumers will be looking for cost effective motoring. Not only will the price of vehicle be important but whole life cost including fuel economy and cost of service and maintenance and residual values. Smaller, fuel efficient cars with extended warranty periods and low maintenance costs are likely to be popular. 

"As most consumers have no viable alternative to using cars for most journeys the imperative will be to reduce the impact of fuel increases on drivers. This will, in turn, force consumers to look at vehicles with good fuel economy and also at those that use alternative fuels including electric and hybrid vehicles."