The new mood of caution among Britain's consumers kept motorists out of car showrooms last year and gave dealers their worst year since 2000, the Society for Motor Manufacturers and Traders disclosed yesterday.

Revealing that last year's slowdown in spending had not been confined to the retail sector, the SMMT said sales of new cars were down by 5% - with a bigger drop recorded for sales to private motorists.

SMMT chief executive Christopher Macgowan admitted that after the recent boom years for the sector, 2005 was a tough time to be persuading households to make their second biggest financial commitment after the cost of their home. "I think the main reason is that all of us get affected by uncertainty. I guess those interest rate rises last year did throw us off track," he told the BBC Today programme. "We are like any retail sector. The interest rates have gone up, consumers are nervous and they have been staying away from the showrooms."

Announcing expectations of a further 3% decline in sales this year, Mr Macgowan said the SMMT was concerned about the downturn and warned dealers that they would have to fight hard for every sale. "If we were looking at the high street retailers, even if they were reporting a 0.5% or 1% drop, we would all be very worried. We have had some good years, so some might say this is merely an adjustment, but it is down and it is serious."

Car sales are not included in the government's monthly retail sales figures, but as a "big ticket" item of spending they are seen by analysts as a powerful indication of consumer sentiment. Strong profitability in the corporate sector meant that fleet sales to business remained robust last year, with the overall decline due to a 10% fall in sales to private motorists.

Rising fuel bills, higher taxes and dearer borrowing costs have all eaten in to the disposable incomes of consumers, while the easing back in house-price inflation has made households warier about taking on new commitments. The Bank of England cut interest rates to 4.5% last August but with the latest news on the economy presenting a mixed picture the City believes the chances of a further cut in the immediate future are slim.

The SMMT pointed out that 2005 ended on a brighter note as demand for new diesel models ahead of the end of a government tax break meant sales were 5% up on December 2004 - the only year-on-year increase for any month last year. Despite last year's overall fall, car sales stood at 2,439,717 in 2005 - 50% higher than the low-point hit during the far more pronounced slowdown in consumer spending in the early 1990s.

Mr Macgowan said the details behind the headline figure were particularly worrying, pointing out that the trade sold more than 120,000 fewer cars to the private motorist last year. "We sell about 1m cars a year to private consumers and the rest goes to the business world. It's the consumers that have stayed away from the showrooms in 2005 - about 10% down, a really serious drop.

"I think it could well continue during this year. Sales have fallen below the 2.5m mark in 2005 and our prediction for 2006 is a further small reduction, so I think we have got some difficult days ahead."

UK car production in 2005 was badly hit by the collapse of MG Rover, SMMT said. Imported cars' share of the market rose to 83% from 81.9% in 2004. The SMMT said the Ford Focus remained Britain's best seller for the seventh year in a row in 2005. The Vauxhall Astra took second place, up from sixth in 2004.