Business secretary Lord Mandelson has revealed that the Government is looking at a scheme under which motorists could be paid to trade in their old cars for new, less-polluting models.
As well as helping ministers meet targets for cutting greenhouse gases, a "scrappage" scheme similar to that operated in some continental countries could also help increase sales.
However, the Department for Business, Enterprise and Regulatory Reform said it had yet to be convinced that such a scheme would provide value for money and no decision had yet been taken on whether to introduce scrappage in the UK.
Manufacturers have been asking for government help to stimulate demand, and figures have recently been published showing that new car sales slumped by 30.9% last month compared with January 2008 - the biggest monthly drop since 1974.
In Germany, drivers trading in a car more than nine years old receive 2,500 euros (£2,245), while in France motorists can receive up to 1,000 euros (£900). Scrappage has also recently been introduced in Spain.
It is thought that an incentive on a similar level in Britain could encourage thousands of drivers to buy a new car.
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