Fewer customers may take out car insurance in the coming months, with a new report revealing that motor traders are still finding trading conditions difficult.

A study from global information solutions company Experian revealed that motor trade business failures dropped by 18.8 per cent during the third quarter compared to the same period of 2006. A total of 69 motor traders failed over the three-month period in 2006, while 56 went bust in 2007.

The number of businesses going bust in the sector has fallen by 27.2 per cent. The fourth biggest improvement out of any industry sector.

But these figures hide the fact that business conditions are still hard, says Kirk Fletcher, managing director of Experian's automotive division.

"Although business failures among dealers have dropped, the reality is that dealers are still finding the market conditions tough," he commented.

"What needs to be taken into account is the size of the motor traders that this quarter's figures actually include. Take for example the recent demise of Dixon Motors, which was one of the biggest dealer groups in the UK.

"It is one of the biggest casualties the industry has seen for a while and is a barometer of where the industry currently is. With dealers this size going bust, the downturn in business failures does not necessarily paint a rosy picture for the industry."

He added: "There is an oversupply of younger cars on the market and with interest rates affecting consumer buying habits, car prices have been falling, putting dealers under more pressure. It is inevitable that focus on competitive market pricing will increase and, as a result, operating profitably has become more complicated than ever before."

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