Lord Mandelson has warned US president-elect Barack Obama it would be a "great mistake" to hand money to its car industry without first securing reform.
He said the car sector in Britain, the US and Europe was under pressure, and "vast subsidies" should not be handed out without restructuring.
Car manufacturer Nissan says it is to axe 1,200 jobs at its Sunderland plant.
The business secretary said the news was "very disappointing" and ministers would act quickly to help workers.
Earlier US president-elect Obama, in his speech on his economic recovery plan, spoke of "jumpstarting job creation and long-term growth".
'Tough time'
But he did not spell out his plans for the car industry in any detail.
In December he said he would not allow the US car industry to collapse but told American TV network NBC the industry and its stakeholders would have to restructure.
Speaking following a cabinet meeting in Liverpool, Lord Mandelson said the car sector was under huge pressure and that it would be a "great mistake if the US government simply handed out vast subsidies without restructuring and consolidation."
"Nissan have taken this decision today in order to secure its future success. The government stands fully behind that"
Earlier Nissan announced it was to axe nearly a quarter of its workforce in Sunderland - where its plant is a major employer.
Lord Mandelson said it would be "a tough time for workers" but added: "Nissan is a very robust company indeed and this plant in Sunderland is a very resilient plant indeed.
"It is modern, it produces excellent cars, it is a huge exporter.
"Nissan have taken this decision today in order to secure its future success. The government stands fully behind that."
Collapse in demand
The government would work with the local regional development agency to help workers find new jobs as soon as possible, he said.
Nissan workers had only returned to the production line this week after an extended Christmas shutdown to cope with the slowdown in sales.
The company, a major employer in the North East, said the outlook for the car market this year remained "extremely challenging", and it needed to take action to try to safeguard the plant's long-term sustainability.
For the Conservatives, shadow business secretary Alan Duncan said: "We regret these losses. The motor industry has been hit hard by a collapse in demand."
He said the prime minister had claimed his economic recovery plan would help save jobs, but that was "already falling apart as an exercise in spin".
The Unite union, which wants a £13bn strategic support package for manufacturing from the government, said the job losses were "devastating news for the workers and their families".
Joint general secretary Derek Simpson said: "Unite will be doing everything possible to minimise compulsory redundancies and it is absolutely crucial that these workers' skills are not lost.
"The economy will improve and when it does Nissan will need these workers' skills again."
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