The SMMT said the January decline was partly attributable to consumers being deterred from buying diesel models that politicians have targeted because of concerns over air quality.
The UK's new vehicle market shrank last month by 5.1 per cent with registrations by business buyers showing one of the most dramatic drops at 29.8 per cent while private and fleet buyers also showed sluggish demand for new cars.
The SMMT said it was a "disappointing performance given that latest low-emission vehicles can help address air quality issues".
However, the SMMT is expecting a further year-on-year drop in March, as this time last year buyers were rushing to get their new cars registered before an increase in vehicle excise duty in April 2017.
February was also a quiet month for vehicle purchases because new registration plates are issued in March, when demand typically increases.
The new auto market declined past year for the first time since 2011, bringing an end to a boom that had been fuelled by cheap finance and personal contract plans (PCP), which now account for more than 80% of all of new vehicle registrations.
In decline February marked the 11th consecutive month of falls in sales of new cars
Registrations of new diesel cars declined -23.5%. Business registrations have seen the largest drop, down 29.8%.
Petrol demand rose in February, up 14.4%; AFVs rose 7.2%.
The strong growth in sales of petrol cars and AFVs has been unable to offset the move away from diesel, which has now slid to a 35.6% market share.
What's causing the decline in new auto sales in the UK?
Increased demand for petrol cars...
"While diesel cars are becoming less popular as drivers look to "go green", these figures show that consumers have not rushed towards alternatively fuelled cars as some expected".
New VED rates came into force on April 1 past year which meant all new cars, except for those with zero emissions, are subject to an annual flat rate charge.
"Our message to fleet managers and individual drivers is to stay focused on getting the right vehicle for the right job, and to seek expert advice when considering a shift in vehicle fleet policy or choosing a new auto".