According to the Society of Indian Automobile Industry (SIAM), domestic car sales last year fell to 18,07,011 units from 19,98,703 units in the previous year.
"The decline in annual car sales that we witnessed in 2013 was the first time after 2002. The negative sentiments have deepened due to the current state of the economy," SIAM Director General Vishnu Mathur told reporters here.
He said high inflation, fuel prices and interest rates - which resulted in high cost of ownership - have affected sentiment.
Highlighting the prolonged slowdown, SIAM said car sales in India have been in positive territory only for three of the past 17 months - October 2012, August and September 2013.
The industry hasn't yet bottomed out, Mathur said, adding that other segments such as commercial vehicles are badly hurt due to lack of mining activities and stalled infrastructure projects.
"We expect some rebound happening in commercial vehicles in the second half of the year," Mathur said, adding that it could have some rub-off on passenger cars as well.
In the April-December 2013 period, the industry saw the launch of 22 new car models, 40 new variants and 10 model refreshes, intended to bring excitement in the market, he said.
In December, domestic car sales declined 4.52 per cent to 1,32,561 units from 1,38,835 units in the same month in 2012.
Market leader Maruti Suzuki India posted a 6.4 per cent increase in domestic sales at 73,155 units as against 68,729 units in the same month of the previous year. Hyundai Motor India sales were also up 6.2 per cent at 28,320 units compared to 26,651 units in the year-ago month.
Tata Motors saw its sales crash by 41.92 per cent to 6,537 units in December from 11,257 units. Japanese car maker Honda posted a 29.27 per cent increase to 5,484 units as against 4,242 units.
Utility vehicle major Mahindra & Mahindra Ltd saw its sales drop by 26.93 per cent to 15,881 units from 21,735 units in December 2012.
According to data released by SIAM, motorcycle sales last month declined by 4.24 per cent to 8,08,281 units from 8,44,046 units a year earlier.
Honda Motorcycle and Scooter India (HMSI), however, saw its bike sales grow by 22 per cent to 1,15,537 units.
Scooter sales in December 2013 were up 29.86 per cent to 3,01,714 units as against 2,32,343 units in December 2012.
Segment leader HMSI saw sales up by 59.89 per cent to 1,67,147, while Hero MotoCorp also witnessed 10.44 per cent increase to 61,298 units. TVS Motor also saw its scooter sales grow by 39.54 per cent to 40,136 units during the month.
Total two-wheeler sales in December 2013 grew by 2.32 per cent to 11,63,465 units from 11,37,081 units in the same period of 2012.
Total sales of commercial vehicles were down by 25.53 per cent to 46,757 units from 62,786 units in the year-ago period, SIAM said.
Total sale of vehicles across categories registered a decline of 1.21 per cent to 14,31,632 units in December 2013 as against 14,49,203 units in the same month of 2012, it added.