Government help may head off intense speculation that Jaguar plans to move some production overseas, an action likely to spark angry protests from politicians and trade unions.
Jaguar and the DTI are understood to be discussing the size of a grant that could keep the manufacture of a new small car, a rival to BMW's high- volume 5 series, in Britain.
A Jaguar insider said government backing 'could make all the difference', though he said a decision on where to build the new models could be 18 months away.
One of Jaguar's factories, a body plant at Castle Bromwich near Birmingham, is entitled to grant aid under the Government's revised rules for development status areas. The bulk of any investment in a new model would go to a body plant, but would cost tens of millions of pounds. It has not been decided whether to base the car on a Ford body or develop a new one.
Development status areas are entitled to up to 25 per cent of a new project. While even the new manufacturing-friendly DTI would balk at spending a quarter of any Jaguar investment, the company believes there are positive signs.
Jaguar is spending dollars 1bn on three new models: a saloon being launched next year; an XJS sports car planned for 1996; and the small car, codenamed X200, due to be launched in about 1998.
The 8,000 employees at Jaguar's three plants in the West Midlands have been fearful of their future since Ford took over Jaguar for pounds 1.6bn in 1989. That fear was heightened recently because of visits by Jaguar executives to Ford's US headquarters.Reuse content