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General Motors Canada says it will spend $170-million to transform its plant in Oshawa, Ont., into a spare-parts maker that will employ 300, rather than closing the facility when car production ends in December.

Travis Hester, chief executive of GM Canada, said the factory east of Toronto will be converted to a facility that stamps and paints body panels and spare parts for GM and other auto companies, providing a bit of good news for Ontario’s battered auto sector. He said the parts factory could expand beyond the 300 jobs as it attracts new customers. “It has tremendous opportunity for growth,” Mr. Hester said at a news conference in Oshawa on Wednesday.

The plan GM announced on Wednesday includes relocation offers for the auto assembly plant’s laid-off workers, enhanced retirement packages for 1,300 employees, and the construction of a test track on 55 acres at the site for autonomous and advanced-technology vehicles.

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The factory was expected to be closed by the end of the year after Detroit-based GM said it was stopping production of the Chevrolet Impala and Cadillac XTS, eliminating 2,600 union jobs in Oshawa and ending a century of car making.

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The surprise move by GM keeps alive a plant that was once the pride of the Canadian auto sector, employing more than 20,000 people making cars for domestic and U.S. buyers as recently as the 1980s.

News of the factory’s expected closing last fall alarmed the industry, the auto workers’ union and governments, who feared the worst from the economic fallout, even after years of dwindling employment amid an industry-wide move to such lower-cost areas as Mexico and the southern United States. The Unifor union launched a months-long campaign to save the jobs, and urged car buyers to support companies that manufactured in Canada.

GM also said in November it would stop making cars at plants in Detroit and Warren, Ohio, as it ended sedan production and focused on better-selling SUVs, crossovers and pickup trucks. GM said the US$6-billion in savings would free up cash to invest in the development and production of electric and autonomous vehicles.

Mr. Hester said the plan to build a test facility at Oshawa for technologically advanced cars gives the plant a stake in GM’s future.

“This will not only support jobs, it will continue to grow our engineering and software development work for us, based just across the road at the Oshawa technical centre and our new Markham technical centre,” Mr. Hester said.

Unifor, the union that represents the Oshawa workers, had mounted a campaign to save the 2,600 assembly plant jobs, calling on Canadians to boycott Mexican-made GM vehicles.

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Jerry Dias, president of Unifor, said he is glad GM is maintaining a footprint in Oshawa, and said he believes employment will grow as the plant wins new work making after-market parts for older cars.

“You have to provide after-market parts for 10 years – quarter panels, doors, hoods, roofs. So what GM is doing today is they are making a long-term commitment to Oshawa because with every vehicle, you have to provide the after-market work,” he said.

He expressed regret that most of the 2,600 union jobs will be gone and no cars are planned for the factory.

“Do I believe this is perfect? The answer is no,” Mr. Dias said. “Obviously we wanted another vehicle in Oshawa. The question is, what do we do?”

GM will expand the size of its existing parts-stamping operation at the factory and retain the paint shop. David Paterson, a spokesman for GM, said the company has had talks with Magna International Inc. and Martinrea International Inc. about selling parts to the Ontario-based car-parts makers. The companies are GM suppliers, but he said GM’s large size makes it an efficient producer.

However, “the core customer is us,” Mr. Paterson said.

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Mr. Paterson said the parts will be profitable, unlike several auto-assembly operations the company considered.

Calls to Magna and Martinrea were not immediately returned on Wednesday.

Mr. Paterson said the new plan came from talks with the union, which began only after the union ended its boycott campaign.

“It came about when Unifor agreed to sit down and have serious discussions about what we can do,” he said. “We were in regular contact but we weren’t able to have serious production discussions until they put aside their campaign … which frankly we didn’t find to be very helpful in terms of convincing General Motors … to consider alternatives for Oshawa."

The plant is expected to be making parts by the end of 2020, after a year of retooling when the car assembly ends, he said.

Flavio Volpe, head of industry group Automotive Parts Manufacturers’ Association, said the announcement was “unexpected,” and left open the possibility that the Oshawa plant could one day become a bigger part of GM’s autonomous vehicle assembly. He said maintaining the factory to make parts was a second-best outcome, behind a new-car announcement but well ahead of a move to sell the land entirely.

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“The significance is they’re in the game. Oshawa, as an assembly plant, isn’t dead. It’s in hibernation,” Mr. Volpe said by phone.

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