David Prosser: Car sales may catch cold after scrappage fever

Outlook: Scrappage fever is sweeping the world. The US equivalent of our scheme – dubbed "cash for clunkers" – has burnt through its $1bn (£604m) budget in just four days, with American drivers rushing to scrap old bangers in return for discounts on new motors.

Over here, the £300m earmarked by the Government for our scrappage initiative hasn't been spent quite so quickly, but the scheme is set to run out of money by October, three months before it officially comes to an end.

Just one problem. Which? magazine reported yesterday that in this country, car manufacturers have raised their prices to such an extent this year that drivers buying new cars may actually be paying more than six months ago, even after the £2,000 scrappage discount. Car manufacturers such as Ford, Vauxhall and Nissan have blamed increased raw material costs and sterling depreciation for the higher prices. In some cases prices are up by 14 per cent, though not all car producers have followed suit. Which? points to Volvo as an honourable exception, for example.

Manufacturers have to maintain margin, of course, and the scrappage scheme still offers a valuable discount, even on higher prices. But if you're heading off to a car showroom this weekend, don't jump to the conclusion that trading in your old banger will guarantee you the best deal – you might be better off looking at the nearly-new sections of the lot.

Meanwhile, the car makers have some thinking to do. So far, the boost in sales that scrappage seems to have delivered suggests that drivers are prepared to pay the higher prices. But what happens when the scheme expires? Faced with even steeper costs, drivers may once again swear off new vehicles, plunging the industry into a second round of depression.