New car registrations in western Europe fell 3.9 per cent to 1.17 million vehicles in July, the German auto industry association VDA said, blaming high fuel prices and a summer heat wave.
Car registrations, which closely mirror car sales, edged up 0.7 per cent to 9.12 million vehicles in the first seven months of the year, VDA's preliminary figures showed.
"Higher fuel prices amid the holiday season and political developments in the Middle East may have unsettled many potential buyers," it said. "Consistently high summer temperatures also kept customers away from dealer showrooms."
New car registrations fell in all major markets in July despite a wave of new products and a price war in Europe, getting the second half off to a weak start and keeping the pressure on carmakers to offer special deals for buyers.
Registrations in Germany, Europe's largest auto market, fell 2.7 per cent last month to 265,845 vehicles.
Registrations in Italy plunged 11.5 per cent, hurt by comparisons with a very strong July 2005 when sales rebounded after a strike by car hauliers ended.
Sales sank five per cent in both France and Spain and retreated 4.1 per cent in Britain. Retail sales in both Spain and Britain weakened in July while deliveries to corporate customers held steady, VDA said. The car sector index has lagged the broader market by around eight per cent since the start of April amid high prices for energy and raw materials and rising interest rates.
Analysts expect another year of flat car sales in Europe in 2006, leaving manufacturers dependent on new products to win business and avoid margin-sapping discounts.
A study by consultancy B&D Forecast found that summer season incentives in Germany were the highest on record. The average rebate knocked around 17 per cent off sticker prices.
Wili Diez, head of automotive studies at Germany's Nuertingen University, said carmakers had to expect flat markets in Europe for years to come.
"The market is pretty much saturated," he said. While there will be normal fluctuations in the economic cycle, he added, "we will have downturns in one market offset by upturns in other markets so the overall market will remain pretty much stable."
Rising competition from Asian manufacturers expanding their capacity in eastern Europe will also keep squeezing western European automakers to chop costs, in part by cutting jobs.
"The pressure on the market will get bigger," Mr Diez said.
Brussels-based ACEA, the European automotive industry association, will not report July figures until next month.