Ministers are demanding the Indian billionaire behind Jaguar Land Rover owners Tata give up some of his personal fortune to save the businesses from collapse.
Details of a potential deal to save thousands of the jobs in the West Midlands began to emerge after Business Secretary Peter Mandelson confirmed he was in talks about providing state aid to help the firms - but insisted there was no “open chequebook”.
Ministers expect Ratan Tata, chairman of the Indian group which bought Jaguar-Land Rover in June for £1.7 billion, to contribute a share of the rescue package himself.
Jaguar Land Rover, which employs 16,000 people in Birmingham, Solihull and Merseyside, is hoping for taxpayer-funded assistance to help it survive the credit crunch.
The Government is willing to help the business with loans or loan guarantees, allowing it to borrow from banks, but only if it can convince Ministers it is has already made the best use of its own resources.
Negotiations are expected to continue over Christmas, as new figures from Society of Motor Manufacturers and Traders (SMMT) revealed the dire situation facing the car industry.
The number of cars built UK factiories was 97,604 last month, down by 33 per cent on November last year, while commercial vehicle production slumped by 50 per cent.
Almost 1.4 million cars have been built so far this year, a 2.7 per cent fall on the same period last year.
But Liberal Democrat leader Nick Clegg warned against giving state aid, claiming it would place the Government on a “slippery slope” and lead to demands for further bail-outs
The comments place him at odds with Liberal Democrat business spokesman Lorely Burt, the Liberal Democrat MP for Solihull, who this week called for “urgent financial help” for Jaguar Land Rover.
Ms Burt told the House of Commons that the UK car industry was “hugely important” because it represented 11 per cent of the nation’s exports, and told Ministers: “They must do something and do it urgently - it cannot wait until after Christmas.”
However, Mr Clegg set out a very different policy, in an interview to mark his first year as Lib Dem leader.
He warned: “If the Government does decide to give this taxpayer-funded help to one company it sets a precedent and it will be very difficult to refuse that assistance to other companies.”
Solihull, which includes the Land Rover factory, is a highly marginal seat which the Lib Dems took from the Tories in 2005 with a majority of just 279.
By contrast, Conservatives were urging the Government to make credit available. Shadow Business Secretary Alan Duncan said: “These unique circumstances call for unique measures. The Government needs to be ready to step in and help sectors to allow them to survive the slump.
“What companies such as Jaguar Land Rover and Nissan need is credit help, not unconditional bail-outs, to prevent those companies which are viable in the long-term going to the wall in the short-term.”
Speaking in the House of Commons, Chancellor Alistair Darling said the Government would do “everything that we can reasonably do” to support the beleaguered car industry, but added: “The primary responsibility for financing a company arises with those who actually own the company.”
David Smith, Chief Executive of Jaguar Land Rover, said: “We believe that Jaguar Land Rover plays a critical role in the car industry in the UK, supporting up to 75,000 jobs in our own business as well as our suppliers and dealers, and spending around £3 billion a year on research and development and purchasing in the UK.”
He highlighted comments from the SMMT, which has warned the automotive industry faces “a national emergency requiring urgent action”.