Business secretary Lord Mandelson will today join other EU ministers to discuss the car industry's demands for a €40bn (£35bn) package to help companies weather the steepest decline in sales for 15 years and retain jobs.

Ministers have been summoned by the European commission amid fears that the 7.8% slump in European car sales last year will worsen in 2009 as credit remains frozen.

ACEA, the industry's main lobby group, on Thursday reported an 8.4% drop in sales in western Europe where the decline reached more than 19% in the final quarter of 2008. The biggest falls have been in Ireland and Spain.

Among the national and pan-European measures to be discussed by ministers are an increase in the multi-billion soft loan guarantees from the European Investment Bank, the EU's own lender, and more incentives for consumers to switch to eco-friendly models.

France, home of Renault and Peugeot Citroën, mitigated the slump in demand last year by rewarding consumers buying fuel-efficient cars with large discounts, and has now offered premia to scrap cars more than 10 years old and buy new ones - a measure copied in China.

The commission is already examining French proposals to offer direct financial assistance, in the manner of help given to the financial sector, while Germany is pondering loan guarantees for manufacturers such as General Motors' Opel as well as giving incentives to buy "green" models.

Mandelson has so far held off from adopting an industry-wide package despite pressure from the UK industry body, the SMMT, which believes tens of thousands of jobs are at risk.