The UK government is mulling making financial aid available to the UK auto industry.

A Society of Motor Manufacturers and Traders (SMMT) spokesman told just-auto on Monday the industry was waiting for a government announcement, possibly this week, but had no indication on timing or the extent of the package.

An industry delegation led by SMMT chief Paul Everitt met with government representatives at the end of November seeking a broad package of measures including the axing of proposed initial registration taxes, increased annual road tax and help with R&D funding to meet planned stringent new European union CO2 rules.

The industry also wants the government to force banks to pass on aid they have received in the form of increased credit to enable consumers to buy new vehicles and suppliers to fund their businesses.

Weekend papers said business secretary Lord Mandelson was likely to make loan guarantees available to the finance arms of car companies and was also understood to be deciding whether to grant low-cost loans to the industry – funded by the GBP400bn set aside to support the banking industry.

Such a move would parallel expectations in the US, where the Bush administration is likely to use part of a $700bn financial services bailout fund to help struggling Detroit-based automakers.

GM and Chrysler have said they need help before the end of the month. Here in the UK, senior industry figures fear the worst if financial aid is not given before Christmas, The Daily Telegraph said.

The GMB union has warned that at least 25% of all car making jobs could be lost in the economic downturn, the paper added.

A spokesman told the Telegraph: “This is the worst time we’ve had. Worse than the 1990s, worse than the three-day week and the oil-price spike of the 1970s.”

The report said Lord Mandelson held fresh talks with Ratan Tata, head of Jaguar Land Rover’s owners Tata, last week and also met executives from GM Europe UK unit Vauxhall.

A spokesman for the Department for Business would not comment to the paper in detail but said: “The government is monitoring the situation at the moment. Ministers have said they want to do all they sensibly can to help viable businesses. The automotive industry is facing serious challenges at the moment and we need to support it.”

Around 200,000 people work in the British automaking industry and another 580,000 in retailing and aftermarket.

The Telegraph suggested any UK action may be put on hold until ministers see what the US government offers the Detroit Big Three.

UK automakers have been cutting output by reducing shifts, cutting production days and extending holiday breaks. Some voluntary redundancy programmes have been introduced and Vauxhall is trialling a ‘sabbatical’ scheme at its Ellesmere Port plant which would give workers up to nine months off next year on 30% pay with holiday and pension payments left intact.