updated 2/24/2009 5:36:36 PM ET 2009-02-24T22:36:36

General Motors Corp. has scrapped plans to build a new factory to make engines for the Chevrolet Volt, instead choosing the less-costly option of assembling the engines at an existing plant.

The troubled automaker said Tuesday that it would install machinery for the 1.4-liter, four-cylinder engine in unused space inside the existing Flint South Engine Plant, about 50 miles northwest of Detroit.

“GM will not invest in new floor space at this time due to current capital expenditure constraints and available floor space in existing facilities,” GM said in a statement.

The move will save the cash-strapped company about $120 million, but it still will create about 300 new jobs, the same as it would have by building a new facility, said spokeswoman Sharon Basel.

The company said it will invest $250 million in the Flint South plant to make the new engine, which also will go into the Chevrolet Cruze compact. Both the Volt and Cruze are due in showrooms next year.

The plug-in rechargeable Volt, GM’s effort to take the lead in electric vehicles, will have a lithium-ion battery and electric motor that can take the car 40 miles on a single charge. After that, the small internal-combustion engine will take over and power a generator to extend the Volt’s range.

GM says the Cruze is expected to get about 40 miles per gallon on the highway.

GM announced in September that it would invest $370 million to build a new 552,000-square-foot engine plant just north of the Flint South plant.

The 1.2-million-square-foot Flint South, opened in 2002, is GM’s newest U.S. engine plant, Basel said. Space was cleared for the new engine assembly line when GM stopped making a 4.2-liter inline six-cylinder engine that went in the Chevrolet TrailBlazer and GMC Envoy sport utility vehicles. The company stopped making the SUVs at the end of last year.

The new line at Flint South, which currently employs about 500 people, is good news for the city, which has been battered by auto industry layoffs in recent years.

GM will start readying the plant for the new engines in the spring, with production to begin in December 2010, Basel said. Initial Volt and Cruze models will have engines produced at a GM factory in Austria, she said.

GM will meet all contractual obligations to companies that were lined up to build the new factory, Basel said.

Detroit-based GM is living off government loans as it tries to weather the worst U.S. auto sales downturn in 26 years. The company has received $13.4 billion in loans and is asking for a total of $30 billion. Without federal money, GM said it would have run out of cash and faced bankruptcy in January.

Chrysler LLC also is living on government loans. It has received $4 billion so far and is seeking a total of $9 billion.

GM will announce its fourth-quarter and full-year earnings on Thursday and is expected to post billions in losses.

GM shares rose 45 cents, or 25.4 percent, to close Tuesday’s regular session at $2.22.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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