The British car industry will face a wave of lengthy closures and job losses in the next few months unless the Government takes urgent action, Lord Mandelson, the Business Secretary, will be told.

Lord Mandelson is meeting chief executives from the carmakers, suppliers and retailers to assess the gravity of the problems facing Britain's biggest industry. One said privately that there could be substantial shutdowns in the next few months that would heap pain on the vast component supply chain if there were not quick measures to boost the market and pump liquidity into the industry.

Paul Everitt, the chief executive of the Society of Motor Manufacturers and Traders (SMMT), said that companies needed to make important decisions on employment and on research and development in the next few weeks and months, which will be determined by their access to credit.

He said: “The eyes of the world will be looking at the UK Government and what it does after this meeting. The Government has established itself as a leader in tackling the global financial problems. It would strengthen itself further if it takes the right action with the car industry.”

The SMMT will not put a figure on the financial help needed, but it will run into many billions. Jaguar Land Rover alone has said that it needs £1 billion over the next two years.

One industry source said that unless there was a sign of an improvement in their prospects, many carmakers could soon start taking the type of action that Honda announced last week. Honda will stop production for all of February and March at its factory in Swindon.

Mr Everitt said that the car industry was facing credit shortages across its operations: customers were unable to get loans to buy cars; small and medium-sized suppliers were struggling with insufficient cashflow and either a lack of borrowing facilities or hugely expensive borrowing; and there were serious cashflow problems at the big manufacturers.

He said: “If we could find a commercial solution to this we would, but we can't. This is why government intervention is essential.”

The Government has pointed small businesses towards the not-for-profit European Investment Bank (EIB), which has funds ready to loan. However, Mr Everitt said that the car industry's needs were more urgent. “The EIB takes about four months and is subject to uncertainty,” he said. “We need help in the next weeks and months. If all that emerges from the meeting is that we've had a constructive meeting, we will be very disappointed.”

The parlous state of the European car market was underlined yesterday when Porsche said that it was delaying plans to take a controlling stake in Volkswagen. Wendelin Wiedeking, Porsche's chief executive, said: “In light of the current economic environment, it becomes increasingly unrealistic to achieve this goal within 2008.”

Porsche said that it would not overpay for VW, adding that it was cutting costs because of the weak automotive markets, despite having earned €8.57 billion last year after a €6.8 billion windfall from hedging against a rise in VW shares.

Continental, the German tyre manufacturer, saw its debt protection costs soar yesterday. The business must now make an upfront payment to buy credit default swaps because of the perceived risk in the car market, analysts said. Usually, credit defaults are paid for in instalments over the course of a contract rather than an upfront payment being required.

Daimler wrangle

Cerberus, the private equity group that owns Chrysler, is demanding more than the $7.2 billion it paid for its 80 per cent stake in the US carmaker in compensation from Daimler. The two are in talks over Daimler selling the 20 per cent of Chrysler it still owns to Cerberus but it is believed that Cerberus is now claiming that Chrysler was mismanaged from February 2007, when the German company put the business up for sale, until August of that year, when Cerberus bought it.

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