The British government has announced it will guarantee up to £2.3bn (€2.46bn) in loans to the car industry.
The move is intended to help the industry cope with a slump in demand due to the credit crunch.
It will guarantee up to £1.3bn (€1.39bn) of loans from the European Investment Bank and a further £1bn (€1.07bn) in loans to back investments that are not eligible for support from the EIB.
The announcement was made in the House of Lords by Business Secretary Peter Mandelson.
Lord Mandelson said the sector was 'vital to the strength of manufacturing in Britain' and action was needed to prevent an irreversible loss of capacity, skills and technology.
'This industry is not a lame duck and this is not a bail-out,' he said.
As in other countries, Britain's car industry has been hit hard by the global slowdown.
Production slumped by nearly half in December as manufacturers responded to sliding demand, according to industry figures released last week.
Japanese giant Nissan announced it was cutting 1,200 jobs in its plant in Sunderland, northeast England, which has around 5,000 workers and is one of the biggest employers in the region.
Luxury carmakers Jaguar and Bentley have also announced production stoppages to reflect lower demand. Jaguar, an iconic British brand owned by Indian group Tata Motors, has also slashed 450 jobs.
The number of cars made in Britain fell 47.5% last month compared with December 2007, while commercial vehicle production slumped 56.7%, the Society of Motor Manufacturers and Traders said last Thursday.
