Sales of new cars fell by more than a fifth last month, the worst September result since 1999.

Luxury saloons and 4X4s, on which manufacturers depend for much of their profits, were the greatest casualties as buyers switched to cheaper, more fuel-efficient models.

Sales of 4X4s fell by 41 per cent and luxury saloons by 43 per cent. The only segment to increase sales was the smallest cars, or city cars, such as the Fiat 500. Sales of city cars were up by 17 per cent.

Car sales have now fallen for five consecutive months compared with last year, with the rate of decline increasing each month. The industry is bracing itself for an even deeper decline over the remaining months of the year.

The decline of 18.6 per cent in August worsened to 21.2 per cent last month, according to figures from the Society of Motor Manufacturers and Traders (SMMT).

In terms of units, it was the biggest drop on record, with 88,995 fewer cars sold last month, a far bigger drop than the previous record decline of 67,245 in August 1990.

The total number of new car registrations in September was 330,295.

The SMMT is preparing to revise its annual forecast, with total sales for 2008 now likely to be around 300,000 lower than last year.

Jay Nagley, a car industry analyst, said: “The car market usually changes very gradually over many years. This September, off roaders have seen their market share fall from 8.4 per cent to 6.3 per cent and city cars have increased from 5.4 per cent to 8.1 per cent. There is clearly a fundamental shift going on in the market place.

“Given that car manufacturers need three years to introduce a new model, this is a very worrying development for manufacturers of larger cars.”

The SMMT said that recent news in the banking sector, a further slowdown in the housing market and rising unemployment had knocked confidence.

“It may be some time before it is restored, unless swift action is taken,” the group said.

The SMMT urged the Government to take immediate action to restore consumer confidence.

Paul Everitt, chief executive of the SMMT, said: “New car registrations have fallen for the fifth consecutive month and represent the most difficult economic conditions the industry has faced in 17 years.

“Government action is now needed to restore consumer confidence and boost demand in the real economy.

“The Chancellor’s pre-budget report should set out a package of measures to boost demand for new fuel-efficient cars and scrap plans for unfair increases in vehicle excise duty.”

Theresa Villiers, the Shadow Transport Secretary, said: “These figures are disastrous news for the car industry.

“They show that the nation’s economic problems are by no means confined to the banking sector but are spilling over into manufacturing as well.

“Cancelling a new car purchase will often be one of the first casualties when families are feeling the pinch.

“The Government needs to wake up to the serious problems in one of the most important parts of the UK’s manufacturing industry and ensure that the regulatory climate doesn’t make the situation worse for our hard-pressed vehicle manufacturers.”

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