Ministers are weighing up a direct loan worth hundreds of millions of pounds to ailing car maker Jaguar Land Rover, it was reported.
Business Secretary Lord Mandelson could approve a £500 million loan to the company, which employs around 15,000 people in the UK, the Sunday Times claimed.
The possibility of a loan comes amid fears of thousands of job losses across the industry as car sales fall away in the credit crunch.
The lack of loan availability saw new car sales plummet by more than a third in November compared to 12 months earlier.
And on Friday President Bush came to the rescue of the US car industry by offering 17.4 billion dollars (£11.5 billion) in emergency loans in exchange for concessions from the companies and workers.
According to the newspaper, talks of a Government guarantee for a commercial loan to the firm have shifted towards a potential direct loan because there was still no certainty that it would be able to borrow the cash. Jaguar Land Rover chief executive David Smith is said to be working on a contingency plan to cut thousands of jobs if aid is not forthcoming.
State help for the business would be controversial however because the firm is owned by Indian conglomerate Tata. But industry bosses told the Sunday Times that around 100,000 jobs from the 850,000 supported by the industry could go by next Easter.
A spokesman for the Department of Business, Enterprise & Regulatory Reform declined to comment on speculation of a loan.
He said: "Lord Mandelson has said the government does not have an open cheque book to bail out ailing companies. The government is doing all it can to help businesses overcome the current financial and economic challenges.
"Jaguar Land Rover have owners who are well resourced, who have first responsibility for sustaining the companies that they own in existence and in production for the future. The Secretary of State has confirmed that government is talking to industry bodies about the current economic difficulties the sector faces."