09/01/2005 - GM has big plans for small Cadillac

General Motors has decided to build a new small Cadillac car aimed at European drivers in its Swedish Saab factory, in a move likely to lessen fears that the plant could be closed.

GM has been considering whether to go ahead with the car since the summer but has now given it the green light, with volumes estimated by one insider at 30,000 to 50,000 cars a year.

The vehicle, expected to start production by the end of the year, will be shown in a near-final version at the Geneva motor show in March. It shares its structure with the Saab 9-3, meaning it can be built on the same production line with relatively little investment.

A senior GM executive said the company had little idea of the likely sales of the car.

However, even at a lower level of sales, the production will be a big boost for Saab's Trollhättan factory, which is fighting to retain production of the Saab 9-3, its biggest selling model. GM has forced Trollhättan to compete with Adam Opel's Rüsselsheim plant in Germany for production of the next-generation 9-3 and the Opel/Vauxhall Vectra mid-sized saloon, which will share common underpinnings.

Trade unions have warned that if Sweden loses the decision - due next month - the factory is likely to close when the current 9-3 production ends in 2007, although the company denies this. The concern was underlined last year when Göran Persson, Sweden's prime minister, visited Zurich, site of GM's European headquarters, to lobby for the factory. Sweden has promised a SKr2bn ($290m) aid package for the region surrounding the factory if GM moves Vectra production there.

A GM executive closely involved in the decision said the competing bids from the plants were closely matched in terms of cost. Higher labour costs in Germany were balanced by higher social costs in Sweden, Trollhättan's distance from the main European markets and the risk from the country's absence from the eurozone, he said. The bids are currently being evaluated by technical specialists, who will report back next month.

The new small Cadillac is designed to support the relaunch of the American luxury brand in Europe after years of negligible sales. Excluding the new small car, Cadillac hopes to reach 20,000 sales a year in Europe by the end of the decade, double its forecast just a few months ago.

GM wants to turn Cadillac into a global brand, and is preparing the ground for production in China and considering introducing sales networks in Australia and South Africa. It is also considering how to add diesel engines - vital for Europe, as half of all cars sold in the region are diesel-powered - to its line-up. Options include buying them in from Fiat, BMW or Isuzu, or developing them internally.