Strong sales of small cars, sports cars and luxury four-wheel-drives drove the market higher in October and the industry is predicting a strong final quarter for 2009, with Government incentives for business buyers likely to provide a further boost to sales in November and December.

Small businesses with a turnover of less than $2 million are eligible for a 50 per cent tax break on new vehicle purchases until December 31, while large businesses are eligible for a 10 per cent break.

The chief executive of the Federal Chamber of Automotive Industries, Andrew McKellar, said the October sales figures reflected a car market – and a wider economy – in recovery.

“It is certainly a positive indication that the industry is now in recovery mode. It’s very encouraging,” he said.

“We would expect to see further growth over the next couple of months as business buyers take advantage of the last couple of months of the tax breaks,” he said.

But he warned that rising interest rates had the potential to put the brakes on what was a fragile recovery in the market.

“We would urge the Reserve Bank to proceed with caution. There are still some areas in which consumer confidence remains fragile,” he said.

The modest increase doesn’t signal a complete return to normality for the industry, as last October was a weak month, with sales down 11 per cent on the previous year.

But the figures were good news for the local car industry, with both Ford and Toyota recording increases in sales of locally-built vehicles.

Ford’s Falcon recorded a small increase in sales, while its Territory 4WD managed a 10 per cent improvement over last year. Sales of Toyota’s V6 large car, the Aurion, were up by almost 15 per cent, while its four-cylinder Camry recorded a 7 per cent drop.