Cash for clunkers

Government spokesman Ulrich Wilhelm said the incentive plan will now run until the end of the year at the latest.

"The subsidy has proven to be an especially successful instrument," Wilhelm said, referring to the 40 percent rise in car sales observed in March.

"For this reason the coalition has agreed to an extension and an increase in funds."

The trade-in scheme is part of government stimulus package aimed at shoring up the economy in the face of a global downturn.

It offers German car owners a government bonus of 2,500 euros for scrapping vehicles older than nine years and replacing them with new fuel-efficient models.

More than a million German car owners have already applied for the subsidy, far exceeding government expectations of the scheme, which was originally intended to accommodate a maximum of 600,000 consumers.

By more than tripling the funds earmarked for bonus payments, the scheme can now accommodate up to two million consumers.

Negative side effects?

While the government praises its car-scrapping premium as a great success, critics argue that the negative side-effects of the scheme are being overlooked. These include falling sales at car parts retailers, auto repair shops and used-car dealers.

Other detractors point out that small carmakers, especially from Asia, have benefitted most from the incentive plan, while major German luxury brands, such as Daimler and BMW, have reaped little reward.

Some members of Merkel's conservative Christian Democratic Union had opposed extending the bonus payments on cost grounds, warning that pumping more money into the scheme would only prolong Germany's worst economic downturn since World War II.

Economic stimulus measures introduced by the German government are already expected to create 40-50 billion euros of new debt this year.

But with some 40 million motorists driving to the polls for national elections in September, it seems few leading politicians in Berlin are willing to oppose such a popular subsidy scheme.