Margaret Beckett, President of the Board of Trade, announced a pounds 43m tranche of public money to secure the commitment of Ford to build its Jaguar X400 at Halewood rather than overseas.
The investment will safeguard 2,900 existing jobs and hold out the prospect of a further 500 posts by the year 2002. More than 100,000 cars a year are scheduled to roll off new assembly lines with 80 per cent earmarked for export.
Ford had threatened to build the "Baby Jag", which will compete with BMW series 3 and Mercedes C-class cars, in the US or Germany. Nick Scheele, Jaguar chairman and chief executive, said pounds 43m covered the difference between building in the UK as opposed to abroad, where no subsidies would have been needed.
But Mr Scheele said there was no question that Halewood was less productive or efficient than plants in Germany. The extra costs covered the amount of work needed to transform the Merseyside plant.
The decision to use Halewood is a big boost to a factory which for many years had a troubled history of labour problems and quality control. Scheele said its industrial relations record had improved dramatically: "The workforce has a lot of pride."
Tony Blair, speaking directly to employees at the plant via a satellite link from 10 Downing Street, said: "It demonstrates once again that international car companies recognise that Britain is a highly competitive place to build cars."
Meanwhile a huge recruitment drive is under way as part of the pounds 122m programme to expand the network of Land Rover dealers across the country. The company owned by BMW of Germany, hopes to create 1,200 new jobs as it increases the number of outlets from 123 to 135.
Land Rover's network of independent dealers will put up the pounds 122m, which will be spent on upgrading existing facilities as well as opening new ones. Land Rover sales are expected to double next year following the launch of the new Freelander model.