The Government has offered a grant of up to £27 million to motor giant Land Rover to build a new vehicle - as rival Toyota announced pay and production cuts at its UK plants.
The company will make a decision later this year on whether to go ahead with the £400 million project at its factory at Halewood on Merseyside.
The car will be based on Land Rover's LRX Concept vehicle, first shown at the Detroit Show last year, and would be the smallest, lightest and most efficient it has ever produced.
Phil Popham, managing director of Land Rover, said: "We welcome the Government's support for this project, which would form a key part of our future product plans and which we very much want to put into production."
"Our engineering feasibility study has shown that we can very successfully deliver Range Rover levels of quality, drivability and breadth of performance in a more compact, more sustainable, package," he continued.
"The compact size, lighter weight and sustainability-focused technologies of the LRX Concept showed how Land Rover is planning to respond to the needs of a changing world. Despite the current economic challenges, we remain committed to investing for the future, to continue to deliver relevant vehicles for our customers, with the outstanding breadth of capability for which we are world-renowned."
Around 2,000 workers are employed at Halewood, which currently produces the Land Rover Freelander 2 and Jaguar X-Type.
The Government said the aid would be taken from the Grant for Business Investment scheme, which is separate from the £2.3 billion Automotive Assistance Programme being discussed at a Government seminar for manufacturers and supply chain companies.
The news came after Japanese car giant Toyota announced cuts in production and pay at its two UK factories. The cuts will start next month at the sites in Burnaston, near Derby and Deeside in North Wales and last for a year.
The company, which employs 3,900 workers at its main production site in Burnaston and 570 at its engine plant in Deeside, has already cut 200 temporary jobs and opened a voluntary redundancy scheme last week.
