The UK scrappage scheme continued to help new car sales in August with sales up 6% from a year ago, the second consecutive month of growth.
The number of new cars sold in the UK in August was 67,006, the Society of Motor Manufacturers and Traders said.
It attributed the rise to the scrappage incentive scheme, worth £2,000 a car, which came into effect in May.
However, total sales since the start of 2009 are still 21.5% lower than the same period last year.
The SMMT said that the incentive scheme had boosted demand, particularly for smaller cars.
"The scrappage incentive scheme is having a positive impact but with consumer and business confidence still fragile, there remain significant risks ahead," Paul Everitt, SMMT chief executive, said.
"It is essential that these early signs of recovery are sustained into 2010," he added.
In July, UK car sales rose by 2.4%, the first rise since April last year.
Key test
September will be a key test for the industry when the new '59' number plates are introduced.
August typically accounts for just 3.3% of annual new car registrations, whereas September normally makes up 17%.
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Many major economies have introduced scrappage schemes to boost sales, including the US, Germany and France .
Under the UK scrappage scheme, a £2,000 incentive is paid to motorists who scrap cars registered before 31 August 1999 to buy a new car.
Half of the money is paid by the government and half by the car industry.
However, car industry representatives fear that once the £300m set aside for the scheme by the government runs out, sales could turn lower.
The Retail Motor Industry Federation (RMIF) says the funds could be exhausted by the end of the year.
"The scheme has been highly successful, but with the retail economic climate still fragile, demand still growing, and an increase in VAT scheduled for 1 January 2010, an extension of the initiative is vital," said Sue Robinson, RMIF director.
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