Sales fell 19.8 percent to 152,076 vehicles last month, traditionally a period when fewer vehicles are sold after a new licence plate series is issued in March, the Society of Motor Manufacturers and Traders said.
Demand in March was at a record high as individuals and businesses in Europe's second biggest autos market sought to avoid paying an increase in excise duty that came into force from April 1 for the most polluting vehicles.
Registrations so far this year are up 1.1 percent, despite forecasts that demand would fall by at least 5 percent this year due to the uncertainties around Brexit and after consecutive record performances.
Following an 8.4 percent rise in March and a slump in April, also hit by fewer selling days due to Easter, the SMMT said it foresaw less erratic swings in the months ahead.
"We ... expect demand to stabilise over the year as the turbulence created by these tax changes decreases," SMMT Chief Executive Mike Hawes said.
But the industry faces a number of challenges ahead including new levies and tighter rules on the most polluting vehicles, which appear to be already dampening demand for diesel vehicles.
Demand for diesel fell 27 percent last month, which compared with a fall of 13 percent for gasoline-powered vehicles, as the government prepares plans to tackle air pollution which could be announced as soon as Friday.
Britain's Financial Conduct Authority also said last month it would be launching a review into finance packages offered to customers buying cars due to concerns that there might be "irresponsible lending in the motor finance industry."
Cheap finance has been key to the success of the sector in recent years with up to 90 percent of cars sold using personal contract plans, whereby customers effectively rent a new car for two to three years by making monthly payments before often trading in for a new model.
(Editing by Andy Bruce, Greg Mahlich)
