UK car registrations rose annually in 2010 after crossing the two million mark.
A report from the Society of Motor Manufacturers and Traders (SMMT) found that the car market rose by 35,847 in 2010 to reach 2,030,846 units - a year-on-year rise of 1.8%.
However, the report warned that the motor industry expects to face a difficult few months because of the "extremely challenging" economic conditions.
According to the report, while sales surged by nearly 20% in the first half of the year, they fell back by 13.8% in the latter six months.
The decline alluded to the end of the car scrappage scheme, which saw sales of more than 100,000 cars, nearly 5% of the total.
Paul Everitt, chief executive of the SMMT, said 2010 was a "year of recovery" for the motor industry, adding: "Economic conditions remain extremely challenging, but industry expects demand to strengthen in the second half of the year.
"Competition in the retail sector will intensify as the industry seeks to re-balance demand across its new and used car and service and repair business.
"UK motor manufacturing recovered particularly well in 2010 and the outlook is for further steady growth this year."
The SMMT pointed out that, although car sales were up by 1.8% last year, the 2010 market was still the second lowest in the past decade and almost 375,000 down on the 2007 figure.
Car sales fell annually by 18% in December to 123,817 units. Vauxhall Astra was the best-selling car in the month, while Ford Fiesta was the top-selling model for the whole year, with sales of more than 100,000.
© Press Association 2011