Business minister Shriti Vadera has ordered a review aimed at helping the UK motor industry tackle the twin challenges of low-cost competition and emerging low-carbon car technologies.

The inquiry will be headed by Richard Parry-Jones, formerly Ford Motor's chief technical officer, and make recommendations to government on measures needed amid an industry-wide shift in carmaking to eastern Europe, India, China and other low-cost countries.

The team will comprise about 10 members from within and outside the industry, and make recommendations on how "all levers of government, both regulatory and fiscal" can be mobilised, Mr Parry-Jones told the Financial Times. It is due to publish an industry action plan in March 2009.

"We need to ensure our car industry can build on its existing strengths and remain competitive in an increasingly globalised world," Ms Vadera said.

Britain is home to seven of the world's largest automakers - more than any other European country - and most of the industry's large suppliers have a manufacturing presence. More than three out of four cars produced in the UK are exported, and plants operated by Nissan and other foreign carmakers here are among the most productive in the world. However, overall employment in the industry has been falling - partly because of productivity gains - and car production has dropped to 1.5m over the past decade from a peak above 1.6m.

Ford's agreement to sell Jaguar and Land Rover to India's Tata for £1.15bn last month again raised questions about the UK industry's niche in a sector undergoing rapid globalisation.

Carmakers face slowing UK sales and pressure from government and the European Union to cut their vehicles' carbon dioxide emissions. The industry's push to develop lower-emission cars could change motor vehicle technology more significantly over the next five years than in the past 100, a research report last month by Deutsche Bank found.

The new group will be asked to take account of Aston University professor Julia King's report on low carbon cars, published last month, which made recommendations on how the UK auto industry might play "a leading role in low-CO2 automotive developments".

It is also due to examine a department study on the environment for Japanese automotive suppliers, which, among other findings, pointed to evidence that Japanese carmakers are increasing their procurement from low-cost countries at the expense of UK suppliers, especially in the areas of metal and plastic parts and tooling. Companies interviewed expressed concern over "skills availability at all levels".

The government's earlier Automotive Innovation and Growth Team, chaired by Sir Ian Gibson, published its findings in 2002.