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  Germany, once Europe's largest new car market, has again been outsold by Italy.

The gloom in the new car industry may not be over yet with European sales slipping dramatically as countries end incentive payments to buyers to swap old cars for new.

Sales in Germany, once Europe's largest new car market, last month crashed almost one third (29 per cent) compared with February last year after it ended its scrappage scheme, according to JATO Dynamics figures. It was again outsold by Italy, which is still operating a scrappage incentive scheme, worth between $2200 and $7500 for every 10-year-old car traded for a new, low-emissions model.

The UK scrappage scheme extension expires at the end of March, while schemes will be phased out in Spain, Italy and France throughout the year. These continued buoyant sales ensured overall European sales remained positive in February with Spain up 47.2 per cnet, UK up 26.4 per cent, Italy up 20.5 per cent and France up 18.7 per cent.

In Australia, the government's 50 per cent tax incentive for small business to buy new vehicles ended last year and car importers have urged the government to adopt scrappage schemes in its place. Federal Chamber of Automotive Industries chief executive Andrew McKellar says the scheme has "varying success" overseas and is being discussed here.

Mazda Australia managing director Doug Dickson says sales have increased for the past five straight months as part of the government's tax break. "But they are mainly small business buyers and it's not sustainable," he says.