New car sales data for Germany released by the KBA shows that the scrappage incentive in Germany is continuing to give the car market a shot in the arm.

German car sales rose 39.7% year-on-year in May to to 384,578 units. Small cars are selling particularly well in Germany this year.

However, market analysts remain unconvinced that the temporary boost caused by a government subsidy that pays motorists 2,500 euros to scrap clunkers in exchange for a new car heralds a lasting recovery to the German car market.

The scheme runs until the end of 2009.

"People know it's steroids, it's not real," Morgan Stanley analyst Adam Jonas told Reuters. "It's pleasure upfront with the pain coming next year."

Jonas said demand would drop off once the incentive scheme runs out.

In the absence of strong incentives, unit volume in Germany in May 2010 could be down as much as 30% year-on-year, he told Reuters.

Car importers association VDIK raised its 2009 forecast for new car registrations in Germany to 3.45m units.

However, some analysts say that the outlook for 2010 is for a downward correction following 2009's artificial boom.