Britain unveiled measures Tuesday to bolster the country's ailing auto sector through the recession and to help fund its transformation into a more energy-efficient industry.

Business secretary Peter Mandelson announced the package, which he said would include guarantees to unlock loans of up to 1.3 billion pounds ($1.8 billion) from the European Investment Bank and a further 1 billion pounds in loans to fund investment in green-friendly vehicles.

"This industry is not a lame duck, and this not a bailout," Mandelson told the House of Lords. "Britain needs an economy with less financial engineering and more real engineering."

Mandelson also said he was looking at ways to promote research and development into cleaner engines, lighter cars and plug-in hybrids. The measures, he added, would provide the industry with a "significant boost" while helping to make Britain "a world leader in the development and manufacture of low carbon vehicles."

The British car industry accounts for around 10 percent of exports and employs about 850,000 people directly in the manufacturing of cars and indirectly through dealerships and suppliers.

Britain's car industry, which is mostly owned by foreign companies like Honda and Nissan, is reeling amid the squeeze on credit and the recession in most major export markets.

Last week, the Society of Motor Manufacturers and Traders said vehicle production in Britain slumped by nearly half in December from the same month the year before as the credit crisis continued to hit demand hard.

Given the slump in demand, many companies have sought to rein in costs. Nissan has cut 1,200 jobs at its plant in Sunderland, England, while Honda has halted production at its Swindon plant for four months.

The package announced by Mandelson received a mixed response, with Kenneth Clarke — the Conservative Party's newly appointed spokesman for business affairs — describing the government's latest "panic-stricken" measures as insufficient.

Steve Radley, chief economist at the Engineering Employers Federation, described the measures as a "long awaited and welcome package", but the Unite trade union's joint leader Tony Woodley described them as a "massive disappointment" to the tens of thousands of workers in the industry.

"This is a fraction of the support being given by almost every other government in Europe," Woodley said, adding the industry is heading for a "catastrophe."

Representatives of the motor manufacturers society is to meet Mandelson to discuss the package Wednesday. They said it was an "important announcement" which recognized the strategic contribution of the motor industry.

Click here for more news from FOX Car Report.