GM picks Michigan for new small car plant

The U.S. flag flies at the Burt GM auto dealer in Denver June 1, 2009.

DETROIT/ WASHINGTON (Reuters) - General Motors Corp will build a new small car at a plant near Detroit in a move that will save 1,400 jobs in Michigan, but shutter plants in Wisconsin and Tennessee.

GM said it would make a new subcompact at its Orion Township assembly plant rather than plants in Janesville, Wisconsin or Spring Hill, Tennessee.

The decision capped a month of intense lobbying aimed at sparing local jobs as GM slashes costs and drops auto brands and car dealers under a federally supervised bankruptcy.

The announcement also moved GM closer to an attempt to make a small car profitably in the United Sates, something executives had long dismissed as impossible because of the segment's tough competition and thin margins.

GM had planned initially to import its upcoming subcompact model from China, but ran into intense opposition from the United Auto Workers union.

A round of concessions from the union completed just before GM's bankruptcy filing earlier this month paved the way for a reversal of that decision, executives said.

"It is now possible for GM to produce these size vehicles in the U.S. in a cost-competitive and profitable way," said Gary Cowger, who heads GM's manufacturing operations.

The Orion plant will be closed for retooling in September and then brought back as a two-shift operation with the capacity to make 160,000 vehicles annually.

It will employ 1,200 workers, some of them new hires at a starting wage of $14 per hour, or half of current assembly wages. Another 200 workers will be kept on at a nearby metal stamping plant in Pontiac.

GM has high hopes for the subcompact. It expects to make over 100,000 of the still-unnamed cars per year in Michigan.

By contrast, the Chevy Aveo sold just under 10,000 units in the United States in the first five months of 2009. The new subcompact will replace the Aveo, which GM imports from South Korea.

"We think this car in a year or two will be more and more toward the sweet spot of the market," said Troy Clarke, president of GM's North American operations.

'MAKE IT IN MICHIGAN'

As part of its bankruptcy process steered by the Obama administration, GM is closing 14 additional U.S. plants.

Under an agreement with the UAW, GM's Spring Hill, Tennessee, home to its now-scrapped Saturn brand, will be put on an "idle" status so it can be reopened if U.S. auto sales recover more strongly than expected.

GM's Janesville plant, the company's oldest facility, closed late last year as demand for full-size SUVs such as the Chevy Suburban slumped. GM has said it could reopen one day.

But Wisconsin officials had seen the opportunity to retool the truck plant to make subcompacts as its best shot at a comeback with the new GM.

Michigan offered GM tax credits under a $779 million program that will run over the next 20 years, as well as funds for retraining workers, Greg Main, president of the Michigan Economic Development Corp told reporters.

GM's home state has been hardest hit by the downturn in the U.S. auto industry. Michigan's unemployment rate is the highest in the United States at 14.1 percent.

About 30,000 people signed an online "Make It In Michigan" petition delivered to GM management by a group organized by Rep. Gary Peters, a Democrat whose district includes the Orion plant.

GM plans to import the Chevy Spark mini-car to the U.S. market by 2011. The Spark is smaller than the new car that will be built at the Orion plant and had originally been aimed at emerging markets and Europe, where small cars are more popular.

GM, which plans to emerge from bankruptcy under the majority ownership of the U.S. Treasury, faces pressure to shift toward smaller cars -- and away from trucks and SUVs -- to meet tough new fuel economy standards.

(Reporting by John Crawley and David Bailey, editing by Dave Zimmerman editing by Andre Grenon)