Lord Mandelson said yesterday that the Government would offer financial guarantees to the buyer of GM Europe to protect the 5,000 jobs at Vauxhall, its British operation.

The Business Secretary told workers at Vauxhall’s Luton van plant that retaining production in the UK remained a “top priority” for the Government.

The company’s future was put in doubt after the collapse of General Motors, its parent, and the impending sale of its European operations.

“I want workers at both Luton and Ellesmere Port to know that we are doing everything possible to secure a long-term commercial future for Vauxhall,” Lord Mandelson said.

Although he did not outline the terms or size of financial support that would be given to Vauxhall’s buyer in return for a commitment to preserve jobs, he said that it might involve loans or loan guarantees. “We would obviously have to have interest paid and some security. This is taxpayers’ money and we are dealing with a lot of it,” Lord Mandelson said.

Magna, the Canadian car-parts supplier, backed by Sberbank, its Russian funding partner, is the frontrunner to buy GM Europe’s operations. In May Magna signed a memorandum of understanding with a view to taking a 55 per cent stake in the business, although the arrangement is not exclusive.

Lord Mandelson said that he would not start negotiations about the size and form of government assistance for Vauxhall until Magna had filed a draft business plan.

He said that Magna had made faster progress than expected with its due diligence of Vauxhall, but that there were important sticking points still to be resolved between the bidder and GM North America. He declined to elaborate on the remaining areas of difficulty.

Lord Mandelson said he and his department were in constant contact with the American and German governments, with GM on both sides of the Atlantic and with all interested parties regarding the deal.

The Business Secretary and his team have held several meetings with Magna, which is thought to be looking for up to £350 million in government funding to support Vauxhall, which the latter sees as fundamental to its survival. “We have to make sure that what we are investing in is not just commercially viable, but is long term,” Lord Mandelson said. “We view Magna International as the prospective preferred owners of GM Europe, but I am not excluding others.”

It emerged yesterday that Beijing Automotive Industry Corporation, the Chinese carmaker, had stepped up its interest in GM Europe and could make a formal bid next week. RHJ International, the Brussels-based investment group that has expressed interest in GM Europe, could also make a formal bid about the same time. The winner is expected to be declared by the end of the month.

The three interested bidders are formulating their business plans, Magna’s scheme including its ambitions to expand in the Russian market. German officials yesterday suggested that interested parties should consider how competition regulators in Brussels would view their plans.

In America, GM’s lawyers were submitting papers to Judge Robert Gerber, a US federal bankruptcy judge, who will rule by July 10 on a plan to create a new GM with the Chevrolet, Cadillac and Buick brands and the GMC lorry division.

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