The European Commission on Wednesday offered five billion euros ($A10.05 billion) to help auto makers produce safer and greener cars, an initiative to be funded by the EU, industry and member states.
The scheme is part of a broader 200 billion euros ($A401.85 billion)- European stimulus package announced by EU commission chief Jose Manuel Barroso to rescue Europe's ailing economy.
"What we have to do for the car industry is to help it transform into a more modern industry, more friendly to the environment and in fact adapting it to the new trends in overall demand," Barroso told a press conference in Brussels as he unveiled the package.
The "European green cars initiative" will include research on new technologies in the development of vehicles that use "renewable and non-polluting energy sources," as well as looking at safety and traffic fluidity," the commission said in its proposals.
The European Automobile Manufacturers' Association - which represents BMW, Daimler, Peugeot, Renault, Fiat Toyota, Volvo and others - gave the package a cautious welcome, calling it "a first step."
"EU governments and institutions need to act and urgency is key," said Christian Streiff, ACEA president and CEO of Peugeot-Citroen.
"The framework proposed this morning needs to be translated swiftly into concrete and effective measures to help an industry in great danger," he added.
The scheme, worth at least five billion euros 5 billion euros ($A10.05 billion) according to the commission, will be financed by the EU, the European Investment Bank (EIB), industry and the member states.
The EIB will provide most of the money through four billion euros in soft loans to the industry to promote "the safety and environmental performance of cars," including electric cars.
Brussels also proposed reductions in car registration and road taxes for lower emission cars to boost consumer interest.
Without explicitly citing the United States, Barroso also took a swipe at US measures to boost the ailing car industry across the Atlantic.
"We are not proposing an old-fashioned industrial plan for the car industry. We believe it is counterproductive to have this sort of thing," he said.
"And in fact we will look at other announcements made in other parts of the world because some of them appear to us completely in contradiction with WTO rules and in clear violation of the trade rules."
The US Congress approved an aid package worth $US25 billion ($A38.42 billion) in September to help the auto industry invest in new generation technology but no timetable was fixed for payments to be made.
Since then, problems have mounted as the global financial crisis has savaged the economy, with the three major US auto makers - General Motors, Ford and Chrysler - clamouring to be helped just as Washington has bailed out US banks.
On Monday, following talks with Chancellor Angela Merkel in Paris, French President Nicolas Sarkozy said that France and Germany are determined to help their car industries weather the economic storm.
New car sales in Europe slumped 14.5 per cent in October as the global financial crisis plunged the eurozone into recession.
The figures marked the sixth consecutive monthly fall in new car registrations.
In response to waning sales, French car maker PSA Peugeot-Citroen has ordered a 30 per cent production cut while Renault is to temporarily shut down several factories in France and Europe as the crisis undercuts the economy.
The bad news on car sales has had ramifications beyond the auto industry.
Last month, steel giant ArcelorMittal announced it was shutting down furnaces at a dozen sites across Europe for at least six months in response to a sharp fall in demand from crisis-hit car makers.
