The British government has admitted it is in talks with the Tata Group, the Indian owners of Jaguar Land Rover (JLR), for a rescue package to bail out the luxury car-making firm.
"We are analysing very carefully what is going on in the sector and we will make good judgements in good time if it is appropriate for the government to take any action or if it is possible for us to do so," Business Secretary Lord Mandelson told broadcaster Sky News.
"We are looking at the sector as a whole. I have had discussions with the owners and management of Jaguar Land Rover in particular, because they argue that they are under particular strain."
The company announced last month that it was laying off around 850 IT and engineering staff because of "severe" global car market conditions. Its sales have been affected and the company has even cut down on working shifts in its plants. It is seeking government help for its cash flow.
The business secretary, however, warned the JLR owners that the government does not have "an open cheque book" for ailing private companies.
"They have owners who are well-resourced, who have the first responsibility for sustaining the companies that they own in existence and in production for the future." He added it is too early to judge whether state help would be needed at JLR, which employs around 15,000 in Britain.
It is understood that Mandelson and the treasury are considering granting a substantial loan guarantee to JLR. The guarantee, which would allow the company to raise bridging finance from commercial banks, would be made available for around 18 months.
The government is aware that any bailout using taxpayers€™ money would invite criticism from the opposition. However, its options are limited, experts say, considering the growing impact of recession on the British automobile industry.
The British car industry has an annual turnover of about 50 billion pounds, according to the Society of Motor Manufacturers and Traders (SMMT). Car-making directly employs some 190,000 people, but the industry as a whole, once components and retail are taken into account, supports 850,000 jobs, the SMMT said.
Most British plants have been working short weeks all this month, and will close over Christmas and the New Year.