Soaring energy prices and an unpopular tax hikes were blamed as car sales in Germany slumped to a 17-year low in 2007.

German car sales dropped by 9 percent last year to 3.15 million, reaching the lowest level since the country was unified after the fall of the Berlin Wall over 17 years ago, according to figures released Thursday, Jan. 3, by Germany's car industry association, the VDA,

VDA statistics also showed that about 243,000 new cars hit German roads in December, about 20 percent fewer than in the same period one year ago. However, sales in December 2006 came on the back of a surge as car buyers attempted to avoid the increase in the value-added-tax (VAT) which was introduced in January 2007.

In contrast, German car production climbed to its highest level ever, powered ahead by record car exports.

Last year was the fifth consecutive year that German exports have risen, increasing to hit a new record of 4.3 million passenger vehicles. Three of every four German produced cars are exported.

German auto exports ended 2007 on a high note with car exports jumping 9 percent in December, the VDA said. Foreign orders were up 7 percent.

Continuing uncertainty bodes ill for 2008 sales

The hefty 3 percent increase in VAT was blamed for 2007's slump along with rising petrol prices driven by instability in the Middle East, and the on-going debate about climate change.

Economists said they fear that worries about weakening consumer spending, oil at a record high and concerns that the US sub-prime mortgage crisis might spread and could continue to hit car sales in the coming year.

But the VDA said a rebound in sales in the last quarter of 2007 "leads us to hope for a slight improvement of the domestic market in 2008."

"We expect a slight recovery in the car business during 2008," said VDA president Matthias Wissmann said at the release of the figures on Thursday.

Other European markets faired better in 2007, but only on the back of the Europe-wide trend of surge buying in the face of impending tax hikes.

Increases in France, Holland

In France, the motor industry managed a tepid 3.2 percent rise in year-on-year sales, shifting 2.064 million units, boosted by a spike in December sales ahead of penalties on big cylinder cars. Penalties for car pollution, from 200 euros to 2,600 euros ($295 to $3,813) per vehicle, came into force at the end of 2007.

The French market has been struggling for the past five years after booming sales of over 2.2 million cars a year between1999 and 2002. Since 2003, sales have been hovering just over the 2 million mark, while 2005 and 2006 both saw sales dip below 2 million.

A similar boost in sales gave the Dutch market a rosier complexion at the end of the year but again, this was due to a looming rise in tax on gas guzzlers. Sales in the Netherlands rose by 4 percent to 504,197 cars, marginally exceeding the industry's annual expectations of 500,000.

However, the Dutch automotive industry has said it expects a 3.4 percent decline to 487,000 vehicles in 2008.

Both France and the Netherlands could well experience a similar dramatic slump in 2008 to that experienced in Germany as the tax on fuel and certain vehicles starts to bite.

Environmental issues were quoted by the British SMMT industry body for the 3.1 percent dip in the UK market until November last year.

Meanwhile, Italy recorded a rise in sales, selling 2.49 million new cars, a year-on-year increase of 7 percent, according to figures published by the Transport Ministry.