New car sales dropped 8.9 per cent in September compared with the same month last year, according to the Society of Motor Manufacturers and Traders.
The figures have been hit by the end of the scrappage scheme which helped to boost car sales.
However, September's drop was less than the 17 per cent seen in August.
The SMMT said sales for 2010 as a whole should still be higher than 2009.
It added that sales in September 2009 had been aided by the government's car scrappage incentive scheme, which ran from March 2009 to March of this year.
Stripping out the boost to sales that came from the scrappage scheme, the SMMT said sales last month had been 16.3 per cent higher than in September 2009.
SMMT chief executive Paul Everitt said demand for new cars had "stabilised".
But he added that the government must ensure its forthcoming spending cuts are balanced by "a strong [economic] growth agenda to boost consumer and business confidence".
Howard Archer of Global Insight said: "Private sales are likely to be limited appreciably by the serious pressures facing households. These pressures will make consumers' very careful about splashing out on as big-ticket an item as a car."