UK new car sales record biggest drop since 2009

(Adds final figures, details on diesel)

By Costas Pitas

LONDON, Jan 5 (Reuters) - British new car sales recorded their biggest drop since 2009 last year, falling 5.7 percent due to uncertainty over potential new diesel charges and weakening consumer confidence since Brexit, an industry body said on Friday.

Demand for new diesel cars plunged 17.1 percent, and with some buyers switching to petrol motors, average CO2 emissions for new cars rose for the first time in two decades, the Society of Motor Manufacturers and Traders (SMMT) said.

Total (LSE: 524773.L - news) registrations ended 2017 at 2.54 million, with drops among both business and private consumers, and are set to fall up to 7 percent this year, the SMMT forecast.

Britain said last year it would hike the levy on new diesel cars that do not meet the latest emissions standards after months of uncertainty over a potential diesel scrappage scheme and confusion over government plans to ban the sale of new petrol and diesel vehicles from 2040.

Since the 2015 Volkswagen (IOB: 0P6N.IL - news) emissions cheating scandal, some major cities including Madrid, Paris and Athens have announced plans particularly focused on cutting diesel emissions including bans, fines and restrictions.

Once touted as a cleaner alternative to petrol, which emits more CO2, diesel has come under fire for releasing other toxic fumes.

Car (HKSE: 0699-OL.HK - news) sales in Britain have previously been a leading indicator for the performance of the economy and last year's drop is the biggest since demand nosedived in 2009 after the financial crisis, but comes after record highs in 2015 and 2016.

Sales in December fell 14.4 percent and SMMT Chief Executive Mike Hawes said further drops were likely in the coming months.

BREXIT

"The two main reasons are business-led and consumer confidence and the confusion around diesel which has caused hold-off," he said of last year's fall.

"The first quarter is going to be tough and March (last year) in particular was an all-time record month. We ain't going to get that next March."

Britain's automotive sector is also concerned its cars could face tariffs of up to 10 percent and be hit by customs delays if the government fails to strike the right Brexit deal.

There are investment decisions which are pending as companies await clarification on the terms of a transitional deal which will bridge Britain's exit from the EU in March 2019 into a new relationship with the bloc, Hawes said.

"Some of those decisions are overdue, they need clarity urgently and certainly the turn of the first quarter is what they have been saying to me," he said.

Honda is one of several carmakers considering contingency plans involving possible extra warehousing and stockpiling of parts and has said it needs clarity by March on a transitional deal.

Hawes said any additional cost borne by British plants could hit the sector.

"That's the thin end of the wedge ... How do you secure that next piece of investment when you're less competitive because you've got to warehouse?" (Editing by Mark Potter)