MINISTERS are considering a direct government loan of several hundred million pounds to Jaguar Land Rover, the Midlands carmaker whose sales have been wiped out by the credit crunch.

The support for Jaguar Land Rover, which employs 15,000 in Britain and has factories in the Midlands and Merseyside, is more extensive than previously thought.

Negotiations had centred on the government guaranteeing a commercial loan, but it is understood that Lord Mandelson, the business secretary, stands ready to approve a direct loan of perhaps £500m.

The switch was prompted by the crisis in the credit markets. Officials at the Treasury and Department for Business (DBERR) are understood to have concluded that even with government banking, there was no certainty that Jaguar Land Rover, which is owned by India’s Tata, would be able to borrow the cash it needed.

Fears are growing of large job losses in the British motor industry. The chief executive of one of the largest carmakers, who asked not to be named, yesterday told The Sunday Times that by Easter he expected 100,000 jobs to go across the industry – in retailing, components and carmaking. The Society of Motor Manufacturers and Traders (SMMT) said the industry supported 850,000 jobs.

The SMMT has asked the government to stimulate demand by making cheap loans available to carmakers’ finance arms. “What is really killing demand at the moment is that nobody can borrow money to buy a car – the loan companies are simply not interested in doing business because they can’t get the funding themselves,” the chief executive said.

Senior motor-industry sources said yesterday that an outline loan proposal from the government was sent to Tata, headed by Ratan Tata, in recent days, and that a decision to proceed could be reached shortly.

Government sources, however, cautioned that no decision was imminent, and that “due diligence” remained to be completed on Jaguar Land Rover’s call for assistance.

The Shareholder Executive, the arm of DBERR that deals with government holdings in private companies, is handling negotiations, and has retained consultants from accountants Price Waterhouse Coopers and KPMG to assist.

Tata bought Jaguar Land Rover from Ford in June for about £1.6 billion.

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