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GM's European unit to build Buicks for U.S. market

General Motors CEO Mary Barra holds a media briefing before the start of GM's Annual Shareholders Meeting at the GM World Headquarters in Detroit June 10, 2014. REUTERS/Rebecca Cook

By Edward Taylor

(Reuters) - General Motors is giving its German Opel unit a new job -build Buick models to sell in the United States as part of a strategy to make good on Chief Executive Officer Mary Barra’s promise to make money in Europe by 2016.

With the European economy sliding again, and the Russian market - GM Europe's third biggest behind Britain and Germany - in a deep freeze, Opel's factories have in recent years been running at about 70 percent capacity.

However, Europe's woes give Opel a new edge: The falling euro makes exporting cars to the U.S. market more attractive.

GM on Sunday will formally announce plans to build a version of the Opel Cascada in Gliwice, Poland for sale as the Buick Cascada in the United States. Although Poland is not part of the euro zone, the announcement, ahead of the Detroit auto show, is a sign of things to come.

Opel has said it will make a crossover vehicle at its factory in Ruesselsheim, Germany to replace the Zafira people carrier. The company has also said Ruesselsheim will build a future Buick model for sale in the United States during the second half of this decade, an Opel spokesman said.

Opel and Buick are already making cars on the same platform. The Buick Regal and the Buick Encore share their underpinnings with the Opel Insignia and Mokka models.

"We are able to reach better economies of scale in engineering and manufacturing by sharing vehicle architectures where it makes sense," the Opel spokesman said.

Barra and Opel chief Karl-Thomas Neumann are working on a three-stage plan, known internally as DRIVE!2022, to introduce new engines and transmissions, and a new family of cars such as the Adam, the Cascada cabriolet and an Insignia.

GM has repeatedly failed to make Opel profitable even after shutting factories, shedding Saab and reversing a plan to sell Chevrolet brand vehicles in Europe.

It shut the Opel factory in Antwerp, Belgium in 2010 and another one in Bochum, Germany in late 2014. That was after slashing 12,000 European jobs in 2004, and abandoning an outright sale of Opel in 2009.

Neumann scaled back the European brand's global ambitions and shifted production of the Mokka subcompact sport utility vehicle to Spain from Korea in the second half of 2014.

Investments in new products like the Opel Adam city car helped raise Opel sales by 3 percent in 2014, to just over 1 million cars.

Sales this year will receive a further boost when a new generation of the Corsa subcompact, which has annual sales of about 370,000, hits showrooms. The previous model was launched in 2006, making it one of the oldest products being offered in European showrooms where it competes with the Ford Fiesta, the Peugeot 208 and the Renault Clio.

But economic weakness in the euro zone and Russia threatens Neumann's turnaround effort. Auto sales in Europe have stagnated at about 20 percent below 2007 levels.

Demand in Russia, a key part of GM's expansion plan, has plunged, exacerbated by falling oil prices and tensions over the conflict in Ukraine. Opel said in September that it would cut production at its plant in St. Petersburg, where it builds the Opel Astra and Chevrolet Cruze compact models, to one shift per day from two.

Rival automaker Ford Motor Co last fall conceded it would not regain profitability in Europe as it had hoped.

The last time GM made a net profit in Europe was in 1999.

(Editing by Joe White and Paul Simao)