Jaguar will start production of a small luxury car in 2001.
The new Jaguar, code-named X400, will challenge the BMW 3 series and Mercedes C-class. It will be built at Ford's Halewood plant near Liverpool, UK.
The plant will change from single shifts producing 140,000 Ford Escorts a year to double shifts building 100,000 X400s.
Ford's current work force of 3,100 will become Jaguar employees. Up to 1,000 new jobs will be created.
Jaguar Production Director David Hudson will move to Halewood within a few weeks to begin planning the changeover.
Halewood was chosen over sites in the US and Germany. The plans hinge on a UK government grant of around $80 million. The grant must be approved EU officials in Brussels.
'Over the past four months we studied potential manufacturing locations in the UK, Europe and the USA,' said Jaguar Chairman Nick Scheele. 'We believe that Halewood can produce the car at the right cost and at the right quality.'
Jacques Nasser, president of Ford Automotive Operations, said the decision will eliminate overcapacity at Halewood.
The plant has been threatened with closure for the past 18 months. An interim plan to produce a 'multi-activity' vehicle based on the Escort platform at Halewood has been shelved.
No decision has been made on where this vehicle will be built, Nasser said.
'This decision addresses problems of overcapacity and the need for a new strategy for Jaguar,' he said. 'We are taking one of our excess-capacity plants and turning it into a plant where the Jaguar brand can realize its growth potential.'
The Halewood paint shop needs only minimal investment to produce the quality of finish expected on a Jaguar, Nasser said. The $450 million cost of setting up a paint shop from scratch had ruled out greenfield sites.
Ford plants in Lorain, Ohio, and Wixom, Michigan, were not chosen because of the costs of exporting the cars to Europe, Nasser said. Ford's plant in Cologne, Germany, would have been a cheaper alternative but would not have helped with the Escort capacity problem.
Jaguar is being transformed from a two-model, 45,000-cars-a-year manufacturer into a four-model carmaker turning out 250,000 units a year. Production of the mid-sized X200 sedan begins in Castle Bromwich, UK, in 1999.
The X400 will not imitate its competitors, Nasser said, but will project Jaguar's image.
Scheele said a number of versions will be produced. The target is 'the 30-year-old motorist in the first blush of his move into luxury motoring.'
Jaguar has had to attract buyers from other brands, Scheele said, and has been 'competing with one hand tied behind its back.'