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UPDATE 2-GM's Saab to cut 1,300 jobs in overhaul

(Adds Saab executive comments from news conference, analyst comment, details)

By Madeline Chambers

FRANKFURT, Nov 27 (Reuters) - General Motors Corp's loss-making Saab unit said on Wednesday it would to cut 20 percent of its workforce, or about 1,300 jobs, in an overhaul aimed at improving the Swedish car maker's financial situation from 2003.

Saab said the job cuts, mainly in southern Sweden, would be accompanied by a streamlining of its engineering organisation and cooperation on cost cuts with other GM units in a bid to improve efficiency in all areas of the business.

"The aggressive efficiency program presented today aims at enabling the company to substantially improve the financial situation beginning in 2003," said Saab.

Saab Automobile chief Peter Augustsson declined to say when he expected the unit to be profitable and said Saab would post a "substantial loss" this year. Some analysts predict an operating loss of about 500 million euros.

The restructuring plan has been dubbed Viggen -- the Swedish word for Thunderbolt and the name of a fighter jet once built by Saab Aerospace -- to underscore the urgency of GM's desire to repair a key component of its European operations, which are struggling against a weakening market and fierce competition.

Production capacity is now outstripping demand in Europe by 30 percent, forcing downsizing actions among other car makers, including Fiat Auto , which is 20 percent owned by GM.

Saab Automobile blamed start up costs for its new 9-3 saloon, investments in its main Trollhattan plant and a deteriorating dollar exchange rate to the Swedish crown for a first half loss of 1.2 billion Swedish crowns (US$131.4 million).

Saab employs 6,600 people in Sweden plus a further 3,000 or so in joint ventures and non-Swedish sales operations.

Augustsson said the cuts would save Saab 50-60 million euros in wage costs but declined to say what they would cost in terms of severance. The southern Swedish city of Trollhattan will take the brunt of the job losses.

The measures, which Saab hopes will boost productivity by 20 percent in manufacturing include 800 job cuts in production, 450 in the engineering organisation and 50 in sales and marketing.

TIRED BRAND

Saab, whose brand has lost some of the cachet it enjoyed among young urban professionals in the late 1980s, has posted a financial loss in 10 of the last 12 years and last reported profits in 1994 and 1995 after the launch of a revamped 900 car.

Analysts are cautious about Saab's chances of a quick recovery but say the brand still has potential for GM as a premium European product.

"From an image point of view, Saab is important for GM Europe," said Michael Raab, an analyst at Sal Oppenheim.

However, it is up against tough competition not only from local rival Volvo, and the U.K's Jaguar, both members of the Ford family, but also from German luxury giants Mercedes BMW and Audi .

"I am modest -- I don't think we will in two or three years be up there with the likes of Audi and BMW," Augustsson said.

"It will be a long time, but it is a guiding star."

The unit hopes new versions of the new 9-3, including a station wagon and convertible, will help to boost revenues and return Saab to profitability. Yet Saab plans to slash investment in new products to 5-6 percent of revenues from 11 percent.

The Swedish unit has already cut its unit sales target for this year to 125,000-130,000 from a previous goal of 140,000 and aims to sell around 200,000 vehicles per year by about 2005.

ANOTHER GM HEADACHE

GM Europe, which also includes the Vauxhall and Opel brands, also in the midst of a restructuring, has already said it will miss this year's target of halving its full year loss to $350 euros from last year. Analysts also say GM Europe's target of breaking even next year now look ambitious.

"We know over the last five years (GM) have focused their resources on trucks, and they have done really an oustanding job. In doing that, they have neglected some of their car programs," said Darren Kimball at Lehman Brothers in the U.S.

According to data from European carmakers association ACEA, GM's western European market share has slipped to 9.9 percent in the first 10 months of the year from 10.9 percent in the same period a year ago and Saab's share is unchanged at 0.5 percent.

"In view of the aggressive action plan .... we are confident that the company is now on the right track," said GM Europe President Michael Burns in a statement.

Sweden has suffered from heavy job losses recently including 36,000 since the start of last year at telecom equipment giant Ericsson alone.

News of the Saab cutbacks prompted Swedish Employment Minister Hans Karlsson to say: "First and foremost I feel for those private indivuals who are at risk of losing their jobs. It will also have a negative effect on the communities and the nearby regions."

(Additional reporting by Mike Ellis in Detroit and Patrick McLoughlin in Stockholm)