More than two million cars were sold in the UK last year, 1.8 per cent more than in 2009, according to the Society of Motor Manufacturers and Traders.
However, the motor industry expects to face a difficult few months because of the "extremely challenging" economic conditions, it added.
The SMMT said sales rose by 35,847 in 2010 to 2,030,846, but it was a year of two halves following the end of the car scrappage scheme in March.
Sales surged by almost 20 per cent in the first half of the year but fell back by 13.8 per cent in the second six months.
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."