General Motors Corp. is close to approving a massive revamp of its Oshawa, Ont., operations that could save thousands of jobs and make it the key source of rear-wheel-drive vehicles for several of its divisions.

The $400-million GM investment would transform its two Oshawa car plants into one leading-edge flexible plant, industry sources said, cranking out 505,000 cars a year, including the reborn Chevrolet Camaro, plus cars for Cadillac and Buick.

That would be good news for Oshawa, where car plant No. 2 is scheduled to close in 2008, wiping out about 2,500 jobs. The plant won two major honours in recent weeks for quality and productivity.

The investment to create a flexible manufacturing plant is linked with the allocation to Oshawa of a crucial new GM vehicle program called Zeta, which will launch the company back into rear-wheel-drive cars in the mid-sized vehicle market. GM needs to make this move to follow the Chrysler division of DaimlerChrysler AG and Ford Motor Co., which are both offering rear-wheel-drive, mid-sized cars.

Drivers are going back to rear-wheel-drive cars because of superior performance and handling.

The development has turned the Ford Mustang into one of the hottest-selling cars in North America and has led to GM's decision to bring back the Camaro. The Chrysler group, in particular, scored a major success when it introduced new rear-wheel-drive cars such as the 300C earlier this decade.

The signs for Oshawa winning the investment are highly favourable, said one GM source who added that the company must stay competitive with rivals in the mid-sized car segments. The source said the Zeta platform -- or basic car underbody -- will be the base for several vehicles.

"I don't think there's any question that Zeta will happen there," added another industry source who is familiar with GM's product plans.

The launch of the vehicles will be staggered, industry sources said, with the next generation of the Chevrolet Impala first out of the chute in June, 2009, with expected annual sales of 165,000 cars.

Next comes Camaro in September, 2009, with annual sales projected at 100,000 a year, including a convertible version of the muscle car, which was a smash hit at the North American International Auto Show in Detroit in January. The Camaro was built in a now-closed GM plant in Ste-Thérèse, Que., until the company discontinued that model and the Pontiac Firebird in 2001.

The two Chevrolet models will be followed by the Cadillac DTS sedan in June, 2010, and the Buick Lucerne in October, 2010, with production of each of those two cars forecast at 120,000 annually.

That would mean keeping workers at car plant No. 2, the one scheduled to close in 2008.

Canadian Auto Workers union members agreed this year to significant changes in their labour agreement with General Motors of Canada Ltd. in order to help win the new investment. They also got a major boost when plant No. 2 won the gold award last week in the closely watched J.D. Power and Associates annual survey of quality. That award came one week after the plant ranked second in North America in the annual Harbour Consulting Inc. study of assembly plant productivity.

The 5,500 workers at the two Oshawa plants cranked out about 526,000 vehicles last year.

The GM board has not approved a decision to redevelop the Oshawa plants, GM Canada spokesman Stew Low said yesterday, and he noted that it's company policy not to comment on future vehicle programs, such as Zeta.

The Ontario and federal governments are putting intense pressure on GM to make the investment in Oshawa after they provided the company with $435-million in financing for its Beacon Project. That $2.5-billion program includes the flexible assembly line in Oshawa, but that aspect of the Beacon Project was put on hold last year. The government assistance has helped GM Canada rebuild a paint shop in Oshawa, invest in an engine plant in St. Catharines, Ont., and add 500 jobs to its joint-venture assembly operation Cami Automotive Inc. in Ingersoll, Ont.

Putting Zeta in Oshawa would be bad news for a GM plant in the Detroit suburb of Hamtramck, Mich., where the Cadillac DTS and Buick Lucerne are made now, because it would leave that plant with no future products.

Decisions on such key programs are being delayed, some industry sources said, while GM deals with the fallout from the bankruptcy protection of its largest parts supplier, Delphi Corp., which was once a subsidiary of the auto maker. GM is in complex negotiations with the United Auto Workers union and the parts giant about financing buyouts of Delphi workers and about GM hiring back some Delphi workers.