New registrations grew 2.7 percent year-on-year to some 3.4 million vehicles, according to data from the Federation of the Automotive Industry (VDA) and the KBA vehicle licensing authority.
"The German auto market grew last year for the fourth year in a row and reached its highest volume this decade," VDA chief Matthias Wissmann said.
The automotive industry is a keystone of the German economy, with firms ranging from global giants like Volkswagen and Bosch to thousands of small suppliers and subcontractors.
That makes the health of the domestic car market a key indicator followed by economists, trade unions, industry leaders and politicians alike.
Particularly troubling for observers has been the rapid fall from grace of diesel-fuelled vehicles -- a German speciality -- since Volkswagen admitted in 2015 to rigging millions of vehicles to cheat emissions tests.
Petrol-powered cars' share of the new car market added more than five percentage points year-on-year to reach 57.7, while diesel shrank to just 38.8 - down 7.1 percentage points on 2016's figure.
Meanwhile, efforts from industry and government to foster interest in hybrid and all-electric cars bore little fruit.
The number of hybrids sold grew 76 percent, while the number of pure battery-powered cars more than doubled with 120 percent growth.
But absolute numbers remained low, with 85,000 hybrids accounting for just 2.5 percent of all cars sold and 25,000 electrics making up 0.7 percent.
Volkswagen and other manufacturers have promised dozens of more attractive electric and hybrid models over the coming decade.
Beyond Germany's borders, the VDA also played up the nation's international strength, noting that of 5.6 million cars manufactured in Europe's largest economy last year, some 77.4 percent were exported.
The absolute number of cars sold abroad -- 4.4 million -- was 1.0 percent short of last year's figure.