The Society of Motor Manufacturers and Traders yesterday said 55,305 new cars were sold in August, down 17.5 per cent.
Sales of petrol cars crashed 38 per cent as motorists switched to diesel.
Experts said punters seemed to have been holding back until new 60-reg models hit the forecourts this month.
Motorists are expected to splash out £6 billion on 320,000 cars in September.
But the SMMT said sales for the rest of the year would probably be lower than 2009, sparking fresh fears over the economy.
SMMT chief Paul Everitt told Sun City: “We expected numbers like this after the end of the scrappage scheme in March. But we face a difficult period. Consumers and businesses don’t have a lot of confidence in their own circumstances over the next six months.
“There is definitely slower traffic on the forecourt than earlier this year.”
The SMMT said most car manufacturers are offering big savings to attract buyers before January’s VAT hike.
Sales had increased for 12 months in a row until July. The Ford Fiesta continues to be the most popular car, with 66,863 bought so far this year.
The Mini dropped out of the top ten motors in August but remains the ninth highest-selling car in 2010.
Separate figures from the British Retail Consortium last night showed high street sales crept up one per cent in August. But the BRC said furniture stores suffered a “dreadful” month as Brits showed signs of cutting back on big-money purchases.