Goldman Sachs analyst Dirk Schumacher said "the government is getting cold feet now about the fiscal consequences" and the business daily Handelsblatt said the government had agreed on a new bonus of €1,250.
The "cash for clunkers" scheme, as one newspaper put it, is worth around $3,300 and was expected to be extended to the end of the year, but "no decision has been taken yet," government spokesperson Thomas Steg told a news conference.
Government ministers would make up their minds at a cabinet meeting on Wednesday, he said.
Sources close to the coalition government said Thursday that the wreckage premium might be reduced after public response was much stronger than expected, with one analyst calling it "a shopping frenzy."
An initial budget of €1.5 billion was approved to cover state subsidies for the purchase of 600,000 cars, but as of this week, more than one million applications had been filed.
Purchasers of a car no more than one year old must scrap their cars which are at least nine years old to qualify for the payment, and demand has focused on smaller autos while leaving brands like BMW and Mercedes on the sidelines.
In March German auto sales surged 40 percent from the same month a year earlier to 401,000 vehicles, partly owing also to a greater number of business days this year.
In February, the first full month the plan was effective, German new car sales jumped by 21.5 percent, while falling elsewhere in the 16-nation eurozone.