The new car market – of which combined fleet and business car sales make up almost 58% – is now in rapid decline.

Sales fell by 13% in July – the steepest decline since December 2006.

Last month, fleet sales, which make up 51% of the new car market, dropped by 7.3% compared to July 2007.

Business sales, which make up 6% of the market, fell by 36%.

“The decline in fleet and business registrations can be attributed to a cautious business environment and perhaps the uncertainty to changes in VED,” explained Paul Everitt chief executive of the motor manufacturer and dealers’ association, the SMMT.

“The dampening of consumer confidence and a cautious business environment means demand is likely to dip in 2008.”

It is clear that fleet decision-makers are now putting off new vehicle acquisitions and are either extending contracts on current leased vehicles or reducing their fleet size.

Where managers are acquiring new vehicles, they are choosing lower emitting models and shunning high polluters.

“There are signs that fleet managers are delaying new car acquisitions, either to squeeze an extra six months or a year out of their current vehicles or because they are waiting to take advantage of the tax changes coming in next April,” confirmed John Lewis, director general of the BVRLA, which represents lease and rental companies.

“We are in an economic downturn so you would expect to see a decline compared to last year.

"Smaller companies are usually the quickest to react in reducing costs and that bears out in the figures for business registrations.”

Fleet sales are dominated by diesel vehicles and, as a result, the diesel market has also begun to decline, with July seeing the first dip in sales for 17 months.

However, its market share continued to improve – at 44.3% compared with 41.2% a year ago.

Analysis of new car sales so far this year shows a clear move away from high polluting vehicles.

Sales of almost every high polluting vehicle have dropped. Bentley, Aston Martin and Daimler have all seen sales fall by over 44% in July.

Much of this move away from high polluters is being driven by fleet manager and company car drivers’ need for more economical vehicles – whether as a result of high fuel costs or new company and Benefit-in-Kind tax rules.

“Our analysis of retail activity shows clear evidence of downsizing with quite a few premium end, fuel-hungry cars being traded in for more economical and tax efficient models,” said Mike Pilkington managing director of Manheim auctions and remarketing.

“It also suggests that there may be an anomaly developing between the used car preferences of the private motorist who bears all car running costs and that of the company car driver where the company covers most of the expense.”

Mr Pilkington said that some vehicles now returning from the fleet and leasing sector, where aspirational and lifestyle considerations influenced the original choice, rather than pure running costs, have not got the same used car market appeal.

“Not surprisingly, off-road and recreational 4x4s - particularly the non-premium brands – are finding it tough, as are the larger-engined derivatives in the executive, compact executive and family car segments,” said Mr Pilkington.

“Even a number of the previously popular diesel-powered versions across most segments have come off the boil.

"With diesel fuel prices about 10% higher than petrol, you have to be a pretty high mileage user to really see the true financial benefit.”

At the other end of the spectrum, demand for alternatively fuelled vehicles has bucked market trends and risen by 19.4% in July.

Sales of smart cars have also seen a dramatic rise – up by 434% in July and up by almost 100% so far this year.

But even fleet favourites such as Volkswagen and Vauxhall have seen sales slip by over 20% last month.

The SMMT says more needs to be done to get motorists into fuel efficient vehicles.

Mr Everitt said: “Industry needs the support of government in order to encourage the uptake of lower-emitting vehicles and ultimately lower the cost of motoring.”