Holden will continue assembling its flagship vehicles within Australia through the next decade on the strength of the $275 million assistance that the carmaker has secured from both the national and state governments.

Prime Minister Julia Gillard has insisted on Thursday that providing the subsidy is crucial for the Australian car industry and the manufacturing sector as a whole.

"This is a great day for Australian car making ... The future of General Motors is secure in this country for the next decade," Ms Gillard was reported by the Australian Associated Press (AAP) as saying.

She added that using taxpayers' money to prop up the struggling Holden, which had earlier implemented job cuts and announced the likelihood of closing down its Australian car making operations, would eventually prove beneficial to the country's economy.

Withholding the assistance will effectively kill the car industry and impact on the general manufacturing sector, a spectre that Ms Gillard was not acceptable.

"This is a strategic co-investment, this is not a handout," Ms Gillard added, explaining that over the years some $4 billion worth of new investments would be absorbed by the local economy via the car making industry.

The industry itself is poised to generate and support thousands of employment opportunities nationwide, the Prime Minister said.

Under the deal, the federal government will source $215 million from its $5.4 billion New Car Plan to serve as the backbone of the subsidy while the South Australia and Victorian government will contribute $50 million and $10 million respectively.

The fund will be matched by the additional $1 billion that Holden and its parent company, the U.S.-based General Motors, have pledged to continue operating at least until 2022.

"Co-investment of this kind is critical for our industry and helps Australia compete against other car making countries that protect their industries through tariffs and/or financial support," GM Holden chairman Mike Devereux said.

The company can now focus on rolling out new cars, with plans of coming up with two new models, from its Elizabeth assembly plant in South Australia, Devereux said.

"Be assured, this is a very sound investment and we are being very conservative," he added.

Also, SA Premier Jay Weatherill expressed confidence that the co-investment will define the bright future of the car making and manufacturing industries in the area.

"That's why it is essential that we invest in Holden's future and that's why Holden's future is essential to Australia's future," Wetherill stressed.

The Coalition, however, has been critical of any moves to rescue that it calls as industries that may not be part of Australia's forward economy.

"We should not ... be in the business of propping up industries that for many reasons do not have a sustainable future in Australia," Opposition Treasury spokesman Joe Hockey was quoted as saying by BusinessDay during a policy speech last month.

Yet rescuing Holden was a necessary move for the Australian government, according to Industry Minister Greg Combet, adding that the decision would also shore up the manufacturing sector.

"Without this Holden would have likely closed operations in Australia," Combet said.