European car manufacturer association ACEA said "cash-for-clunkers" programs in 13 European nations had helped boost sales of small cars but had failed to make a major dent in overall demand.
Vehicle producers are reacting by cutting back. Van and truck production more than halved in the first quarter, ACEA said, while car output fell 31 percent to 3.1 million. Car sales fell a slower 17.2 percent in the same period.
It expects car production to fall 25 percent over the whole year and output of trucks, vans and buses to decline at least 50 percent as companies don't replace older vehicles.
It said manufacturers were worried that "car demand might drop very abruptly at the beginning of next year" if government incentives for buyers aren't phased out gradually.
The programs have helped smaller cars — cheaper and more fuel efficient — to grab a bigger market share, taking a record 44.9 percent of all car sales from January to May. Gas-guzzling sports utility vehicles slumped to 8.4 percent, ACEA said.
British car factories have cut output more than other major car-making nations, the group said. Vehicle output was down 57 percent in Britain, 46 percent in France, 40 percent in Spain, 38 percent in Italy and 32 percent in Germany.