MINISTERS are set to unveil a limited aid package for beleaguered carmakers this week as fears grow over tens of thousands of job losses in the industry.

Lord Mandelson, the business secretary, is expected to make loan guarantees available to the finance arms of car companies in an attempt to kick-start sales. Another option is for low-cost loans to be made from the £400 billion set aside to support the banking industry.

Industry leaders have been asking for a move to stimulate demand for more than six weeks, but now say it will not be enough to keep their manufacturing plants in operation.

Senior car-industry executives told The Sunday Times that they feared the worst if more substantial aid was not forthcoming before Christmas.

“There will have to be layoffs, and there is a real danger of a clearout among component makers, who are finding it more and more difficult to get funding,” said one.

The GMB trade union fears that at least 25% of all carmaking jobs will be lost in the economic downturn. Bert Hill, a senior officer for the GMB in the Midlands, said: “This is the worst time we’ve had. Worse than the 1990s, worse than the three-day week and the oil-price spike of the 1970s.

“The plants and suppliers are already asking for voluntary redundancies of 20%-30% and nobody is taking it up because there’s no other work out there. We desperately need help from the government.”

The UK car industry has an annual turnover of about £50 billion, according to the Society of Motor Manufacturers and Traders (SMMT). Carmaking directly employs some 190,000 people, but the industry as a whole, once components and retail are taken into account, indirectly supports 850,000 jobs, the SMMT said.

Most UK plants have been working short weeks all this month, and will close over Christmas and new year. Vauxhall, GM’s UK arm, has begun offering employees sabbaticals of up to nine months in an attempt to cope with the downturn.

Mandelson and Gordon Brown are mulling requests for direct assistance for car plants. Mandelson last week held fresh talks with Ratan Tata, head of the Indian Tata business empire that owns Jaguar Land Rover, and has also met top executives from Vauxhall.

It is understood that Mandelson and the Treasury are considering granting a loan guarantee of several hundred million pounds to Jaguar. The guarantee — which would allow Jaguar Land Rover to raise bridging finance from commercial banks — would be made available for around 18 months.

In the talks with Mandelson, Ratan Tata and Jaguar Land Rover executives have stressed the company’s sizeable research- and-development programme. It spends £400m a year and plans several new mod- els next year, including a new XJ saloon and the first of several hybrid vehicles.

Approval of the UK rescue may be delayed until the continuing wrangle over a bailout of the big three Detroit carmakers — GM, Ford and Chrysler — is resolved.

Plans for a $14 billion (£9.4 billion) loan were scuppered on Thursday, but the White House has said it will allow funds set aside for the banking industry bailout to be used instead. Executives from GM and Chrysler were in talks this weekend on the details of the package, which is expected to give sufficient funds to tide both companies over until the new year.

Sources in Washington said that about $4 billion from the Troubled Asset Relief Programme (Tarp) could go to GM to avoid it having to file for Chapter 11 bankruptcy.

There is a hidden threat to carmakers from the plight of component makers — such as Wagon, the Birmingham-based company that collapsed into administration last week. Analysts expect that UK groups with exposure to the American market, such as Tomkins, may have to lower their earnings forecasts for the year.

Smaller firms may face sudden crises if credit-insurance firms — those that underwrite payments to suppliers — withdraw their coverage of the carmakers, as some are understood to be threatening to do. “That would leave the carmakers either having to pay cash for components, or the supplier having to take a risk on waiting for payment,” said one executive.

Details of a European Investment Bank scheme to help the industry are expected to be finalised this week. Low-cost loans will be made available to support investment in fuel-efficient cars.

Most large carmakers, including Jaguar Land Rover, have already prepared their submissions, but it is unlikely that any money will flow from the scheme before April.

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