Serbia’s Zastava Vozila will produce Opel Astra Classic II small cars for General Motors Corp. under a new deal finalized today.

Zastava, onetime producer of Yugo models sold in the U.S., will build up to 10,000 cars per year by 2012 for GM under the pact.

GM will invest in a modern assembly line at the plant in Kragujevac, in central Serbia. The facility currently has capacity for 60,000 vehicles annually but built only 15,000 cars last year.

The Classic II is the older-generation Astra model.

Government officials approved the GM-Zastava tie-up in May and said imports of the Classic II and local assembly in Kragujevac would get under way in 2008. The deal means GM will be subject to lower taxes on the Astra that will allow it to compete more effectively in the local market.

Zastava already has a production contract with Fiat Automobiles SpA. The Serbian company launched imports of the Fiat Punto in spring 2006 and local assembly was slated to begin in June.

The Italian-built Punto is rebadged the Zastava 10 and sold in Serbia and some other countries in the region.

In contrast, the Astras are expected to wear Opel badges and be distributed through Opel dealers.

The Astra Classic also is assembled from complete-knocked-down kits at ZAO ZAZ in Ukraine and ZAO GM-AvtoVAZ in Russia, where the car is badged as the Chevrolet Viva.