Saab is considering a new small car based on a Subaru. A spokesman for Saab confirmed that the two companies are having discussions which could see Saab using the platform from the next-generation Subaru Impreza as a basis for a range slotting beneath the recently launched 9-3. Fed up with Saab's continuing losses, owner General Motors is reworking the so-called Viggen recovery plan in the hope of effecting a speedier recovery. Developing a smaller Saab would provide the company and its dealers with a three-model range that might provide it with the scale economies needed to turn a profit, and bring the brand to a much wider car-buying audience.

The unusual source for the platform comes about because GM holds a significant share of Subaru, whose next-generation Impreza is broadly the right size for the job. It also has the advantage of being unique, what with its flat-four engine and four-wheel drive system. Although Saab has no history of these mechanical solutions, they offer the chance of developing the slightly off-beat product that the company is known for, and Subaru's penchant for turbocharging fits with Saab's long history of turbo expertise.

There are some big problems with this solution, however. First, it would probably make sense to build this car in Japan - shipping half-built cars around the world is not viable - which does nothing to fill Saab's under-used capacity at its Trollhatten facility. Second, there is no diesel version of the Subaru flat-four, a weakness now that at least half of European buyers now demand an oil-burning engine in cars of this class. The Impreza platform, designed around the weight distribution and low centre of gravity of the petrol flat-four, would have to be very substantially re-engineered to take a diesel engine. This alone could make the project unfeasible.

Saab had at one time planned to use the so-called GM Delta platform to develop a new small car, but abandoned the project because it felt the resulting car would not be sufficiently Saab-like. The GM Delta will form the basis of the next-generation Vauxhall/Opel Astra. Saab was also co-developing an SUV with Cadillac (Saab's biggest market is the US, where SUVs sell in vast numbers) but this project foundered too, and the plans to develop a replacement Saab 9-5 in league with Fiat's Alfa Romeo division are in disarray because of the Italian company's difficulties, which are far worse than Saab's.

In another development, Automotive News Europe reports that Saab's owner General Motors has said that the Swedish company's product development and engineering operations will come under the direct control of Opel, General Motors' main European brand. Opel chairman Carl-Peter Forster is reported as saying that "we will see a tremendous amount of collaboration". These plans are among a number of measures intended to turn around Saab's poor financial and sales performances. Last year it sold some 120,000 cars, well below its capacity of 175,000, with the result that in the first six months of 2002 it lost a record £83million. Full-year figures are not yet available, but are understood to be little better. The company has already announced 1400 redundancies - around a fifth of the workforce - which come despite the successful launch of the well received new 9-3.

Some 400 redundancies are in the engineering area, reducing the total staff to 2800; 200 job losses are in administration and marketing and 800 are from the Trollhattan production line.

Currently there are two lines at the plant, a freshly commissioned line building the new 9-3, and an older line making the 9-5. The new line will also make additional models to the 9-3 family, including the estate and the crossover 4x4 based on the 9-3x concept car, and it will now also assemble the 9-5. Sales of this model have dropped significantly since the 9-3's arrival, which leaves the older production line mothballed. The 9-3 convertible will be built under contract elsewhere as before - but at the Magna-Steyr plant in Graz, Austria rather than by Valmet in Finland.

While the reorganisation of Saab's product development and manufacturing operations under Opel appears definite, along with the subsequent loss of some of its autonomy, its product plans remain uncertain. Using Subaru as a resource demonstrates just how far GM is prepared to go to turn the problem Swede around.