The announcement of the funds followed the submission of a report to the Department of Trade & Industry (DTI) by the Automotive Innovation and Growth Team.
At the centre of the plan is the creation of an Automotive Academy to deliver best practice in leading-edge process improvements.
Before the announcement, industry minister Patricia Hewitt admitted that the Government had been mistaken to emphasise the dotcom economy, saying that the Internet should be seen as crucial to the revival of UK manufacturing.
Industry experts agreed that IT needs to be at the centre of a strategy to reinvigorate the UK car industry.
Nick Matthews, principal fellow at Warwick University's Manufacturing Group, said, "What is good about the shift in emphasis is that to produce higher value products with higher design input can only be brought about using the Internet and distributed systems to manage complex supply chains."
The Automotive Innovation and Growth Team said the key threat to the UK automotive industry comes from mainland Europe, where better use of IT allows reduced inventory and lead times.
According to Simon Bragg, of manufacturing IT analyst ARC Consulting, "UK automotive supply chains are generally hopeless."
Bragg described the IT systems of the top tier in UK car making as characterised by a mass of unintegrated legacy, home-grown bespoke systems with much use of electronic data interchange systems, which are also unintegrated.
In this environment short lead times, build-to-order and low inventory - and all the gains in productivity that would follow from that - are impossible, said Bragg.
He contrasts this with the set-up in German car manufacturing, where large integrated SAP systems are linked to communications, connecting production planning with requests for component delivery.
Bragg said, "Everybody agrees that what is needed is to take out inventory, reduce lead times and make supply more responsive to production line demand."