The SMMT said new car registrations rose by almost 36,000 to total 2.03m last year, ending 1.8 per cent up on 2009 figures.
The fleet market rose by over ten per cent in 2010, but private volumes slipped following the end of the government's car scrappage scheme
The trade association warned that 2011 could be difficult and predicted car sales could fall by five per cent over the year as the government's spending cuts bite.
"2010 was a year of recovery for the motor industry," said Paul Everitt, SMMT Chief Executive.
"Economic conditions remain extremely challenging."