The BBC's Simon Montague: Buyers may soon be disappearing

After reaching nearly 2.25 million units last year, sales will fall back to about 1.9m in 2000, the Economist Intelligence Unit (EIU) predicts.

The report said: "The high penetration rates, congestion, pollution, the increasingly unfriendly tax regime and rising costs of ownership make the outlook for the UK's car retailers far from bright.

The cost of car ownership is rising

"Indeed, it may be that the 1989 and 1998 peak sales levels may never again be repeated."

The London-based organisation said sales in the UK should rise for a few years after 2001 but not by much.

This was partly due to a "stable and ageing population experiencing limited economic growth".

The government's greater emphasis on public transport was also likely to have an effect on car sales, the report said.

World sales to fall

World car sales, meanwhile, are expected to fall 6% this year and another 3% in 2000 and will not peak again until 2003.

European sales are not set to increase in the long term and following the collapse of demand in Asia, the next markets to suffer will be South America and eastern Europe.

But the upturn will be felt first in Asia, with South Korea, India, China and Malaysia seen as growth markets by 2005.

About 30 million surplus cars could be built each year

Russia is also a potential growth market, with demand likely to be 73% higher in 2005 than it was in 1998, "although this is also probably the most risky market in the world."

The EIU warned the industry of over-production, saying it is equipped to build 77 million cars and trucks a year, but 1999 sales were expected to be only 47 million units worldwide.

"With supply likely to exceed demand even more in 2000, the pressures for car makers to cut prices, cut costs, merge or close will increase still further," it said.

Within a few years, the car market will be dominated by eight to 10 companies compared to the current 15 or so, the report predicts.

General Motors, which includes Vauxhall, is predicted to remain the largest car manufacturer overall by the year 2005, with Ford losing second place to Volkswagen.