GM plans $1bn Brazilian expansion

GM is emerging from Chapter 11 as a leaner company

General Motors says it is to invest more than $1bn (£608m) to develop two new car models in Brazil despite woes at the company's US headquarters.

GM says the planned investment should create about 1,000 jobs.

A government tax break which cut the cost of new vehicles in Brazil, led to GM seeing record sales in the country.

The expansion comes as GM emerges from bankruptcy proceedings as a private company which is majority owned by the US government.

However, GM in Brazil is financially independent of the US company - and it has been keen to stress that there will be no dependence on products from the United States.

Half of the investment will come from the company itself and the rest from loans from state-run banks, says the BBC's Gary Duffy in Sao Paulo.

Brazilian motorists bought more new cars in June than ever before, making the country one of the few bright spots for the industry worldwide.

"Car manufacturers here are even suggesting 2009 could be their best year in history but they may have to work harder to maintain that outlook when the government eventually removes its tax break which it has now extended on two occasions," our correspondent said.

Reputation ruined

Detroit-based General Motors (GM), once the world's largest carmaker, it has sold its best assets to a "new GM", in which the US government is the largest shareholder.

Spurred on by the Obama administration's support, the process to get out of bankruptcy proceedings took just 40 days, and it is hoped that GM will now be on a path towards a profitable future.

Brazil and GM's global empire

The "new GM" is a leaner, smaller company, having shed tens of thousands of workers, eliminated or sold brands, closed scores of factories, and rewritten its employment contracts to cut costs.

It has also had some of its massive debts, racked up during four straight years of losses, removed.

It will operate the best parts of the old company, including its Chevrolet, Cadillac, Buick and GMC brands.

The US government has a 60.8% stake in the new company, while Canada and a United Auto Workers union retiree healthcare trust fund also have a stake.

The "old GM" will retain a 10% stake - this is to allow creditors to recover some of their losses.

However analysts say it could be some time before it is able to sell enough vehicles to make a profit, and it must work on repairing its battered reputation.