The Government is providing £360m of loan guarantees to support Ford's £1.5bn, five-year plan to develop green engines.
The package is the first successful application to the Automotive Assistance Programme launched by Lord Mandelson, the Business Secretary, more than 12 months ago.
The guarantees will help Ford fund six projects including research into low-carbon engines for Transit vans and investment in the Bridgend plant. In total, the scheme will secure 2,800 skilled jobs, the company says.
In a further boost to the British car industry, Nissan yesterday committed to build the all-electric "Leaf" at its Sunderland factory from 2013, adding to existing plans to start making lithium-ion batteries next month. Nissan's schemes are worth £420m and are backed by £20.7m of public money.
The plans from Nissan and Ford are the latest examples of Lord Mandelson's much-vaunted "industrial activism" aimed at rebalancing the economy with "less financial engineering and a lot more real engineering".
The strategy embraces all types of manufacturing, but particularly low-carbon industries including green energy, low-carbon cars, and civil nuclear power.
It is not just rhetoric. The last year has been punctuated by regular announcements of expansion and investment in relevant industries, lubricated with public money (see box). Yesterday's announcements from Nissan and Ford came the day after Lord Mandelson agreed to lend £80m to Sheffield Forgemasters to help build a 15,000-tonne press to make nuclear reactor parts.
Industrial interventionism – derided as "picking winners" after the disasters of the 1960s and 1970s – was abandoned by the Conservatives in the 1980s in favour of using non-selective, macroeconomic tools such as boosting venture capital or better funding for universities.
But in the wake of the financial crisis, French-style "dirigisme" is back on the agenda. And Lord Mandelson is not shy of making the link. "Margaret Thatcher wouldn't have done it; John Major wouldn't have; even Tony Blair, I don't think, would have: but under Gordon Brown we've made a crucial break with the past 30 years," he said. "The question is what would David Cameron do? Revert to the fatalism and free-market dogma of the past 30 years or do what governments need to do to ensure economic success."
For the policy's supporters, there is clear evidence of success. In the car industry alone, the outlay of relatively little public money has drawn massive investment from Ford and Nissan, and made significant strides towards the creation of an entirely new electric car industry, way ahead of EU rivals.
But experts maintain that changes in the tax regime are a far more certain route to vibrant industry. "Creating or promoting particular industries – especially new ones – has been proved to be difficult, and there is no evidence that it will be more successful now than in the past," Sir Geoffrey Owen, at the London School of Economics, said. "Governments can do things at the margins but they can't create new industries or re-create ones in decline."
Dirigisme: In full
* The Government has stumped up more than £1.2bn in loans and guarantees since the launch of "industrial activism"
* Grants from the £950m Strategic Investment Fund include £340m for next-generation aircraft
* "Low-carbon economic area" investments have included £100m for wave technology in the South-west, £19.5m for green cars in the Midlands and £15m for an advanced nuclear research centre in the North
* In the last month, the Government put up £4.5m for the UK's first wind turbine blade factory, £30m for a wind technology research centre and another £18.5m for the New and Renewable Energy Centre in Blyth