The West Midlands would become an industrial wasteland were Jaguar Land Rover allowed to fail, manufacturing expert Professor Lord (Kumar) Bhattacharyya has said.

The head of the Warwick Manufacturing Group, warned unemployment in the region would go “through the roof”.

Professor Bhattacharyya, said he believed negotiations between JLR’s Indian owner Tata and the government over a short-term loan, or loan guarantee at commercial rates were “going well”.

And the Labour peer, who has close contacts with Gordon Brown and Tata chairman Ratan Tata, said he was confident a deal could be put together.

He was speaking amid warnings that the steep and sudden downturn in the global car industry is unlikely to flatten out until 2010. Analysts at PriceWaterhouseCoopers have calculated that world production will fall in 2009 by ten per cent to levels last seen in 2003.

Prof Bhattacharyya said the government appreciated how important it was for the country to retain a research and development base that was already too low in comparison with its rivals.

Tata has already pumped in an estimated £600million of extra money to help JLR stay in production until the world money markets – the usual source of working capital – began operating normally again.

He pointed out that the government regularly helped finance the development of new Rolls-Royce aero engines on standard commercial terms.

And he hit out critics who are urging the government to allow JLR to go to the wall.

“Jaguar Land Rover is not some sort of basket case. It is in the process of developing around eight new models over the next two to three years,” he said. “We are not talking about another MG Rover. Rover did not have the R&D and it did not have the products to be competitive. JLR has.

“The United States has offered massive subsidies to its car industry; the Swedish are following suit; so are the Spanish; and the French have jumped in too.

“Directly and indirectly there are 600,000 employees dependent on JLR. If the company was allowed to fail there would be meltdown in the West Midlands – we would have an industrial wasteland. Surely we don’t want that to happen.”

Professor Bhattacharyya said the new Jaguar XF Diesel S, with average fuel consumption of 42 mpg and CO2 emissions of 179g/km, which was unveiled on Monday showed the company was leading the drive to produce the cleaner, more fuel-efficient vehicles demanded by the public.

Until now there had been little demand for luxury carmakers to change, which is why not even BMW and Mercedes had got far down the line.

But as JLR increasingly sold to the world, doing well in emerging markets such as Russia, China and Brazil, the demand was for luxury cars but at an environmental standard.

“The financial sector is in crisis, the service sector is reducing and if manufacturing goes down, where will we create employment?

“The future of the world is technology. Who will recognise the UK as an international player if we are prepared to let JLR go? That is what the government needs to ask itself,” added the peer.