The UK car industry has welcomed government support worth up to £2.3 billion, announced by business secretary Lord Mandleson.

The package includes a scheme to unlock £1.3 billion of loans from Europe for car manufacturers and major suppliers, along with a government guarantee of up to £1 billion in further loans to fund investment in green-friendly vehicles.

Outlining the measures in the House of Lords, Lord Mandleson said the automotive industry was vital to British manufacturing, but was “in the frontline of the downturn”.

“This is great news for the UK automotive industry,” said John Lewis, chief executive of the BVRLA.

“We will continue to call on the government to ensure that motor finance providers of all types have access to government liquidity and guarantee schemes so that they can help businesses and consumers upgrade to cleaner and more fuel-efficient vehicles.”

The automotive sector is crucial to the British economy with 1.75 million cars and commercial vehicles produced each year, supporting 800,000 jobs in the UK.

Paul Everitt, SMMT chief executive, added: “This is an important announcement that recognises the strategic contribution of the motor industry and follows action in other EU member states, the US and Japan.

“The UK motor industry is productive and globally competitive with a long-term future at the heart of the low carbon agenda.”