France has proposed raising taxes on some SUVs and other petrol-slurping cars while giving tax breaks for smaller and cleaner vehicles, a step now on hold after German protests that the step smacked of blatant protection for French automakers.
The mayors of London and Paris have led a popular backlash against the bulky vehicles that they say clog city roads and pose a hazard to pedestrians and drivers of smaller cars.
Germany is set to abolish a tax loophole that makes it cheaper to own heavy SUVs than other cars.
Automakers - especially in Germany - say that times are hard enough without facing fresh levies on one of the industry's fastest-growing and most lucrative segments.
Any new tax "is always a burden and we see every month how hard the market is", says Eckehart Rotter, spokesman for the German automotive industry association VDA.
German chancellor Gerhard Schroeder has warned France that bilateral ties would suffer if Paris undercut German carmakers such as DaimlerChrysler, BMW, Volkswagen or Porsche, whose SUVs meet brisk demand.
France's plan is on the back burner until the government holds talks with carmakers and the European Commission.
Under the initial proposal, drivers of the dirtiest cars could be charged over €3,000 (£2,000) while owners of the cleanest could get tax breaks of up to €800 euros.
The move could favour domestic manufacturers PSA Peugeot Citroen and Renault, for whom more efficient diesel cars account for almost half of sales, and penalise their German rivals, which depend more on chunkier models.
PSA and Renault both say they favour plans to encourage motorists to opt for more environmentally friendly cars, but that such measures should not be announced too far in advance since it could upset spending habits and prompt a rush on SUVs.
Japanese manufacturers like Toyota Motor Corp, Nissan Motor Co and Suzuki Motor Corp also stand to feel the pinch from any higher European taxes on SUVs.
Toyota's RAV4 model was Europe's best-selling SUV last year with nearly 100,000 units sold, ahead of Nissan's X-Trail, Suzuki's Vitara and Ford brand Land Rover's Freelander, according to J.D. Power-LMC Automotive Forecasting Services.
Renault has a 44% stake in Nissan.
Paris's city council may ban them from the city centre, while London's mayor, Ken Livingstone, backs plans to double the standard £5 congestion charge for SUVs, whose drivers he has called "idiots" with more money than sense.
In June Claude Mandil, head of the International Energy Agency, recommended that China - whose car sector is booming - refrain from buying too many SUVs.
SUVs have grabbed around 5% of the western European market by bucking a wider decline in overall car sales. Some 100,000 more SUVs hit the road last year.