The End of Life Vehicles Directive means that manufacturers will be responsible for scrapping vehicles that are no longer roadworthy.
But the move could cost car makers £450 million a year in the UK alone - a cost that would be passed on to new car buyers, including fleet operators.
New proposals outlined by the Society of Motor Manufacturers and Traders say that the final owners of a car should deliver the vehicle to a shredder or dismantler who would issue an end-user certificate that would allow the owners to stop paying road tax on the vehicle.
Presenting evidence to officials from the Trade and Industry Select Committee, the SMMT said that dismantlers would then be able to accept or reject the vehicle, but once accepted it would become their responsibility.
Shredders would be required to accept any vehicle and take the added financial benefit from the materials extracted. After 2007, a manufacturer would take back any car that a crusher could not make money on.
French and German governments intend to follow the letter of the directive, making manufacturers responsible from 2007 for recycling all cars, with no opportunity to recharge the final user.
A consultation document issued by the Department of Trade and Industry suggests that manufacturers could be liable for the full costs of the scheme from next year, but says it has not yet made a decision.