GM's Brazil unit to buy engines from Navistar

SAO CAETANO DO SUL, Brazil, July 22 (Reuters) - General Motors Corp's GM.N Brazilian unit said on Tuesday that a subsidiary of Navistar International Corp (NAV.N) agreed to supply it with diesel engines over the next decade in a deal worth almost $2 billion.

The contract with MWM International Motores, Navistar's Brazilian unit, is the latest in a series of steps by the U.S. automaker to increase capacity in Brazil, where car and truck sales are hitting record highs month after month.

Under the terms of the deal, which is worth about 3 billion reais ($1.9 billion), MWM will supply GM with 420,000 diesel engines between 2011 and 2018 as part of the automaker's strategy to boost output and launch new models in the coming years to keep up with surging demand.

"This partnership allows us to respond much more quickly to a changing market," Jaime Ardila, GM's chief executive for Brazil and the Mercosur region, told reporters at the automaker's main Brazilian plant in Sao Caetano do Sul, just outside Sao Paulo.

Last month, GM added a third shift at the Sao Caetano factory, hiring 1,500 employees in a bid to boost output by 50,000 vehicles a year. It is also investing $200 million to build a new engine and auto components plant in southern Brazil.

Brazil has been a rare bright spot for GM in recent years, helping to offset hefty losses in the United States. It returned to profit in the South American country in 2006 after eight years of losses, benefiting from an economic upswing and a credit boom that has helped revive the entire auto industry.

($1=1.59 reais)

(Reporting by Alberto Alerigi Jr, Writing by Todd Benson, editing by Phil Berlowitz)